The Dutch government has launched a draft bill on corporate loss. The draft bill is aimed at preventing misuse of the liquidation and cessation loss rules and at expanding the tax base.
Benefits from a “participation” (an interest of at least 5%) foreign activities, such as dividend and capital gain are in principle exempt from tax. As a result, during the existence of the relevant activities corporate income tax is levied once, either in the Netherlands or abroad.
However, there is an exception to these provisions in case foreign activities are discontinued, since if the ceasing of activities gives rise to a loss, such a loss cannot be taken into account abroad. Therefore, under the current Dutch provisions this loss may still be deductible in the Netherlands.
The current rules used by Shell and other multinationals to write off losses incurred when liquidating a foreign subsidiary from their Dutch profits. As a result, the non double taxation may arise since the Netherlands and the other jurisdictions have no profit base to levy the tax due to the loss situation.
Under the draft bill to prevent the misuse of liquidation loss on a participation, the loss would only be deductible if the following conditions are satisfied:
The conditions have been proposed in order to limit the liquidation loss rules to situations covered by the EU/EEA freedom of establishment. To the extent the conditions are fulfilled, the losses should be deducted within three years from the discontinuance of the relevant activities or the decision for the discontinuance.
The draft bill also contains threshold for the loss deduction. Losses up to the amount of EUR 1 million remain deductible (this also applies to interests of 5% but less than 25% and also to non-EU/EER situations).
The proposed entry into force of the new rules is set on 1 January 2021 with a three-year transitional period concerning deferred liquidation losses incurred before 1 January 2021.
Source: Dutch Government
Webinar | 5 September 2019 - "Fit for Future: A Refined Approach to Tax Risk Management"
TPA Global is pleased to invite you to International Tax Review’s 19th annual Global Transfer Pricing Forum in Amsterdam (NL).