On June 16, 2011 the European Commission asked the Netherlands to relax the country’s regime governing the creation of fiscal unities for corporate income tax purposes so as to allow tax groups to be created between fellow Dutch subsidiaries of a parent company established in a different Member State. The Commission’s reasoned request was made within the context of infraction proceedings launched in response to a complaint that was submitted by KPMG Meijburg & Co in 2008.
Statutory requirements for the creation of fiscal unities
Section 15 of the Netherlands Corporate Income Tax Act includes a number of requirements governing the creation of a fiscal unity. These requirements rule out the creation of a fiscal unity between fellow subsidiaries of a non-resident parent company. At present, fiscal unities can only be created between a taxpayer (the parent) and one or more other taxpayers (the subsidiaries) if the former is the beneficial and legal owner of at least 95% of the shares in the nominal capital of the latter.
Creating a fiscal unity between fellow subsidiaries of a parent company established abroad is only possible if the shareholdings in the subsidiaries belong to the assets of the parent company’s permanent establishment in the Netherlands. Many parent companies do not have such a permanent establishment or, if they do, are unable to attribute the shares in the subsidiary (or subsidiaries) to that permanent establishment. Accordingly, the Dutch Revenue has so far consistently refused all requests for a fiscal unity between fellow subsidiaries of an EU parent company. This stance made KPMG Meijburg & Co decide to submit a complaint to the European Commission, alongside the submission of an appeal with a local court on behalf of one of its clients, in an attempt to launch infraction proceeding against the Netherlands.
Obstruction
The European Commission has now declared to accept our view that granting Dutch parent companies the right to create a fiscal unity between their subsidiaries based in the Netherlands without including the EU parent company in the fiscal unity. Although it is not possible to create a fiscal unity between two fellow Dutch subsidiaries without including the Dutch parent company, it could follow from the ECJ’s Papillon case that this would not hamper the creation of a fiscal unity between two fellow Dutch subsidiaries. According to the European Commission and KPMG Meijburg & Co there is no valid justification for the Dutch approach.
If the Netherlands fails to make satisfactory adjustments to its regulations in this regard within two months, the European Commission may decide to initiate proceedings against the State of the Netherlands at the European Court of Justice.
We would also like to point out that similar issues arise in situations where a Dutch sub-subsidiary of a Dutch parent company is held through an intermediate holding company established in a different Member State. In a recent case, the Haarlem District Court has ruled that pursuant to the said Papillon case, the Dutch Revenue must allow the creation of a fiscal unity despite the fact that the shares in the capital of the sub-subsidiary were held by a foreign company without a permanent establishment in the Netherlands.
Comments by KPMG Meijburg & Co
The obstruction brought up by the Commission can also be viewed as an impediment caused by the fact that a Dutch parent company is able to create a fiscal unity with its subsidiaries established in the Netherlands whereas an EU parent company without permanent establishment in the Netherlands is not. Furthermore, the ruling of the ECJ in the X Holding case on the cross-border settlement of losses is irrelevant to the admissibility of a fiscal unity between fellow subsidiaries and an EU parent. This is because the settlement of those losses is effected entirely within the Netherlands and, as such, does not involve cross-border components.