The Netherlands Updates Decree On Application Of Participation Exemption

; posted on
March 12th, 2019

The Dutch government updated Decree on the application of the participation exemption (the Decree) with effect from 9 March 2019, having retroactive effect to 13 February 2019. The clarification and amendments of the Decree relates to the application of option rights and simplification of dissolution procedure to the extent the subsidiary has been declared bankrupt or the decision to liquidate the holding has been taken, yet the liquidation has not been completed.


Under the participation exemption, proceeds from qualifying subsidiaries, including dividends and both realized and unrealized capital gains, are excluded from the taxable profit for corporate income tax purposes. Under the updated decree, the government clarifies that the participation exemption also applies to option rights if, upon exercise, the holder would hold a qualifying participation.

Costs of acquisition and disposition of participations are also covered by the exemption and therefore are non-deductible. Accordingly, capital losses on the disposition of participations are not deductible. An important exception is made for losses in connection with the liquidation of a participation (i.e. liquidation losses may be deductible), provided certain requirements are met.

A shareholding is a participation if the taxpayer owns at least 5% of the nominal issued and paid up capital of a Dutch or foreign company with a capital divided into shares. Shareholdings of less than 5% do not qualify.

The Changes

The main clarifications and amendments of the Decree are the following:

  • Application of the participation exemption on option rights: the State Secretary is of the opinion that, in order for the participation exemption to apply to the benefits derived from the option being exercised, the shares to which the option relates must be in the possession of, and form a qualifying participation for, the writer (for call options) or holder (for put options);
  • The application of the inclusion rule to option rights: in a situation where the taxpayer (i) holds at least 5% of the share capital; and (ii) holds an option that grants the right to acquire less than 5% of the share capital, the option is also included in the participation exemption;
  • "Expiring" participations: under the updated decree, there are new subsections 1.16.2 and 1.16.3. The new sections explain that under which the participation exemption may, under conditions, continue to be applied for a period of 3 years from the time the formal conditions for that exemption are no longer fulfilled. However, it does not apply to certain option rights and the inclusion rules; and
  • Simplified dissolution procedure: two additional conditions have been added in order for a simplified dissolution procedure to be considered as dissolution and settlement of an entity for purposes of article 13d(11) of the Corporate Income Tax Act (which provides for the treatment of liquidation losses). These two conditions provide that (i) the simplified dissolution procedure must have been completed; and (ii) the taxpayer must submit proof of this completion (e.g. by way of a "notification of dissolution").

Source: Dutch Government

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