On June 12, 2014 the Court of Justice of the European Union (CJEU) ruled that Dutch legislation on the fiscal unity for corporate income tax purposes is contrary to the European freedom of establishment, because it is not possible to set up such a fiscal unity between sister companies of a European parent company, or between sister companies and the European parent company. This also applies to a domestic parent company that holds a domestic sub-subsidiary through an intermediate holding company resident in another EU Member State. The CJEU’s decision was rendered in response to the request for a preliminary ruling that had been submitted by the Amsterdam Court of Appeals in respect of three cases, one of which was litigated by KPMG Meijburg & Co on behalf of one of its clients.

Relevant facts and the dispute

The CJEU decided to deal with the three proceedings as joined cases, i.e. they were heard together in a single proceeding on 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 the rejection was the alleged risk of losses being deducted in both the Netherlands and Germany, i.e. international double loss set-off.

The judgment

The CJEU ruled, firstly, 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, it concluded that the three situations are comparable to situations permitted under Dutch law. The CJEU ruled, secondly, that the restriction cannot be justified on the grounds of reasons of overriding public interest. It 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 judgment is in line with earlier CJEU case law and will be applauded by many internationally operating companies. The Netherlands, and possibly also some other Member States, will have to amend, or 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.

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