The Netherlands Consulting on New Tax Group Regime

; posted on
June 20th, 2019

The Netherlands Ministry of Finance has announced the launch of a public consultation on the design of a new corporate tax group (consolidation) regime to replace the current fiscal unity regime, which was recently amended by emergency repair measures as a result of compatibility issues with EU law.

Background

The desire to create a future-proof group regime triggered by vulnerability in the EU-law of the current fiscal unity regime, as evidenced by the judgment of the European Court of Justice and the final judgment of the Supreme Court concerning the per-element approach.

In relation to this, the legislation has been amended in respect of a number of elements that has been adopted by the Upper House on April 23, 2019. However, with regard to other elements, the risks under European law have not (or may not have) entirely disappeared. Therefore, Dutch government starts the consultation on draft of new group rule.

Possible approaches

The consultation includes four possible approaches to resolve issues with the current regime:

  • Continue the current fiscal unity regime with the repair measures and, if necessary, introduce additional repair measures. In this scenario, according to the Deputy Minister, the Netherlands would remain the only EU Member State with full consolidation of assets and results.
  • Completely abolish the fiscal unity regime without the introduction of a new tax group regime. The options document notes that this scenario is expected to lead to a structural increase in tax revenue, but that its amount will depend in part on the extent to which businesses adjust their group structure. In the absence of a tax group rule, the desire to simplify the group structure may increase, for example – where possible – by means of mergers and liquidations.
  • Introduce a loss or profit transfer regime in which each member of the tax group determines its own tax result, with the possibility of either offsetting loss/profit among group members or accounting for the total loss/profit in a single joint return. A variant is the one in which the tax provisions are in the first instance applied per entity, but subsequently the profits and losses of all entities belonging to the tax group are accounted for by a designated entity of that group (‘profit pooling’). Only one corporate income tax return, which is filed by the designated entity, is then required for each group.
  • Introduce a cross-border arrangement with object exemption for foreign corporate profits to bring the fiscal unity regime in line with EU law. In this scenario, the recently introduced emergency repair measures could be canceled. However, the options document notes that such a system does not exist elsewhere and may be vulnerable to new legal proceedings.

The consultation runs from 17 June 2019 to 29 July 2019, with a draft of the intended group regime proposal to be submitted to the House of Representatives in Fall 2019.

Source: The Dutch Government

 

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