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 main clarifications and amendments of the Decree are the following:
Source: Dutch Government
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