Fiscal unity regime
A Dutch resident parent company and its Dutch resident subsidiaries (if the parent owns at least 95 per cent of the shares) may, under certain conditions, file a tax return as one entity (fiscal unity). The fiscal unity regime is available for companies having their place of effective management in the Netherlands, both for Dutch tax and treaty purposes. It is also possible to form a fiscal unity with a PE of a non-Dutch EU/EEA resident company as the parent of the fiscal unity if this PE holds at least 95 per cent of the shares in a Dutch subsidiary. Moreover, it is possible to form a fiscal unity between two or more Dutch resident ‘sister’ companies if a non-Dutch EU resident holds at least 95 per cent of the shares in both Dutch companies. Finally, it is possible to form a Dutch fiscal unity between Dutch entities that are linked via a non-Dutch resident EU/EEA intermediary holding company. The fiscal unity means that taxation takes place on the basis of full consolidation of assets and liabilities and profits and losses. Therefore, profits of one company can be offset against losses of another company forming part of that fiscal unity. Furthermore, inter-company transactions within the fiscal unity are eliminated.
A cross-border fiscal unity including non-Dutch resident companies, other than Dutch PEs of non-Dutch resident companies, is not possible. The CJEU has decided that this aspect of the Dutch fiscal unity regime does not violate EU law (the freedom of establishment), insofar as it disallows a cross-border fiscal unity (nr. C-337/08).
However, the CJEU has decided that certain effects of the fiscal unity regime, which are beneficial to the taxpayer, should also be granted in cross-border EU/EEA situations if, hypothetically, another EU-resident group company could have been included in a fiscal unity with a Dutch resident company if the EU/EEA-resident group company were a Dutch resident company (nr. C-398/16 and C-399/16). The effects of the fiscal unity are effects other than cross-border loss utilisation, e.g. effects relating to interest deduction limitations, to domestic loss compensation (qualification of the type of losses), and to the application of the participation exemption. These effects together are known as the ‘per element-approach’. In this respect, we also refer to the 'Income determination' and 'Deductions' sections.
In reaction to the CJEU’s decision, ruling the ‘per element approach’ applicable to the Dutch fiscal unity regime, the Dutch legislator has amended the CITA and the Dividend Withholding Tax Act (DWTA), ‘switching off’ the effects of the fiscal unity in respect to several provisions that were under dispute for both domestic and cross-border situations and with retroactive effect to 1 January 2018. Please note, however, that the Dutch fiscal unity has maintained its normal effect in relation to the earnings stripping rules. The amendments result, among others, in disregarding the fiscal unity for the purpose of: (i) the provision on the interest on related-party debts, (ii) the provision on the excessive participation interest, (iii) the provision of the participation exemption regime on portfolio investment participations, (iv) the ‘anti-mismatch’ rule of the participation exemption regime, and (v) the provision on loss utilisation in cases of significant changes in ultimate ownership.
In the wake of the 2018 Court of Justice for the EU ruling of the ‘per element approach’ applicable to the Dutch fiscal unity regime, ‘emergency measures’ were retroactively enacted as of 1 January 2018. Based on these ‘emergency measures’, certain provisions in the Dutch CITA will apply as if there was no fiscal unity, despite the presence of a Dutch fiscal unity. These provisions include the application of the rules on ‘the deduction of interest on loans that are directly or indirectly granted by a group company in order to finance an acquisition or capital contribution deduction’. The same holds true for elements of the participation exemption with respect to the portfolio investment participations and the ‘anti-mismatch’ rule, as well as for the limitation of the utilisation of losses after a change of 30 per cent or more of the ultimate control in a company and the effective reduction of dividend withholding tax payments in case of certain re-distributions of dividend. As of late 2020, the shaping of the future fiscal unity regime is being reconsidered by the Dutch government, with a decision to be made by a next government (formation after the elections in March 2021 currently in progress).
Country-by-country (CbC) reporting
The Netherlands has implemented the OECD outcomes in the area of country-by-country (CbC) reporting. The documentation obligations include the requirement for eligible taxpayers to produce a CbC report, a master file, and a local file.
There are no thin cap rules as such, although the Netherlands has implemented the ATAD I earning stripping rules (refer to ‘Anti-abuse regarding interest and loans’ under ‘Deductions’).
Controlled foreign companies (CFCs)
The CFC-regime aims to target corporate taxpayers that hold a direct or indirect interest, either standalone or with affiliated companies, of more than 50 per cent in a subsidiary or disposes of a PE in either a low-taxed jurisdiction (i.e. a statutory CIT rate of less than 9 per cent) or a non-cooperative jurisdiction that is explicitly listed by the Dutch Ministry of Finance. Under conditions, certain proceeds of the CFC will be included in the taxable base of the taxpayer.
Furthermore, interests of 25 per cent or more in a company of which the assets consist (nearly) exclusively of low-taxed portfolio investments should be annually valued, as an asset, at the fair market value. The participation exemption is not applicable to portfolio investment participations unless these participations are qualifying portfolio investment participations for the participation exemption. A portfolio investment participation can only qualify for the participation exemption if either the intention of holding the participation is not an investment intention or if the participation is, in itself, either subject to sufficient tax or if the participation holds sufficient qualifying assets. This rule prevents shareholders of low-taxed portfolio investment participations from benefiting from the Dutch participation exemption. Dividends not qualifying under the participation exemption are taxable in full at the ordinary CIT rate. Double taxation is avoided by applying the tax credit method, unless the portfolio investment shareholding effectively is not subject to tax at all. For EU shareholdings, it is possible to credit the actual underlying tax.