Under Dutch legislation, a fiscal unity for corporate income purposes cannot be established between sister companies of a foreign parent, or between sister companies and the foreign parent. This also applies to a domestic parent company that holds a domestic sub-subsidiary through an intermediate holding company resident abroad. The question that has arisen is whether this is in accordance with the European freedom of establishment. On February 27, 2014, the Advocate General (AG) at the Court of Justice of the European Union (CJEU) issued an Opinion on this issue, in response to the request for a preliminary ruling from the CJEU that was submitted by the Amsterdam Court of Appeals in respect of three cases, one of which is being litigated by KPMG Meijburg & Co on behalf of one of its clients.

Relevant facts and the dispute

These cases, which the CJEU has decided to deal with as ‘joined cases’, i.e. they will be heard together in a single proceeding, concern internationally operating businesses that are also active in the Netherlands with numerous Dutch-resident operating, holding and/or financing companies. In one of the cases, the Dutch companies are subsidiaries of a German parent company; in the other two cases, the Dutch companies are held by a Dutch parent through German intermediate holding companies.

The requests that were filed all invoked the European freedom of establishment as substantiation for including the Dutch companies in a fiscal unity, despite the fact that the common parent company or the intermediate holding companies are all established in Germany. The Dutch tax authorities rejected the requests. One of the reasons given for this rejection was the alleged risk of losses being deducted in both the Netherlands and Germany, i.e. international double loss set-off.

The AG’s opinion

The first conclusion drawn by AG Kokott is that in all three cases the freedom of establishment is restricted, because the taxpayers are being denied access to the fiscal unity regime. The taxpayers are therefore being disadvantaged. In particular, she concludes that the three situations are comparable to situations permitted under Dutch law. The second conclusion drawn by AG Kokott is that the restriction cannot be justified on the grounds of reasons of overriding public interest. She rejected the arguments put forward by the Netherlands, i.e. the need to preserve tax coherency, including the necessity of avoiding national and international double loss set-off.

Commentary KPMG Meijburg & Co

This Opinion is in line with earlier CJEU case law and will be applauded by many internationally operating companies. If the CJEU follows this Opinion, the Netherlands, and perhaps also some other Member States, will have to (further) amend their legislation. It should be noted that this does not involve cross-border loss set-off; the loss set-off only relates to Dutch profits and losses and, to this extent, does not contain any cross-border elements. It is important to note that requests for preliminary rulings do not suspend national deadlines. To preserve your rights timely action is required. A request for a fiscal unity can be made up to three months after the desired commencement date.

We will now have to wait and see whether the CJEU will rule in accordance with the AG’s Opinion. However, the Opinions issued by Advocates General are often an important indication as to how the CJEU will in fact rule.

Click here to download the memorandum in pdf format