The Dutch fiscal unity regime allows Dutch companies to form a fiscal unity in which they can consolidate their Dutch profits and losses and file a single consolidated corporate income tax return. Therefore, losses of company A can be offset against the profits of company B within a fiscal unity or vice versa. Companies that would like to form a fiscal unity should be resident in the Netherlands according to Dutch tax law.
In the 2008 Court of Justice of the European Union (EU) Papillon case (C-418/07), regarding the French fiscal integration regime (similar to the Dutch fiscal unity regime), a French company wished to apply the fiscal integration regime to its French subsidiary that was held by an intermediate company located in the Netherlands. The French tax authorities claimed that the fiscal integration regime could not be applied in this case, as the intermediate company was not located in France. The EU Court of Justice ruled that the French fiscal integration regime was not in line with the EU freedom of establishment at this point. Therefore, the fiscal integration regime should be open for the French company and French subsidiary held by the Dutch intermediate company.
Despite the ruling in the Papillon case, the Dutch Ministry of Finance did not take any action in order to align the Dutch fiscal unity regime in this regard, as it assumed that the Dutch fiscal unity regime significantly differed from the French fiscal integration regime. Nevertheless, various Dutch taxpayers were of the opinion that a “Papillon” fiscal unity could be established based on the Papillon case and that the rejection of the Dutch tax authorities of requests to form such a fiscal unity is not in line with the EU freedom of establishment. Some of the taxpayers decided to go to court with their cases, and at this moment, three cases are pending with the Dutch Supreme Court. The Dutch Supreme Court decided to apply for a preliminary ruling of the EU Court of Justice regarding the Dutch fiscal unity regime in light of EU law in these three joint cases.
In two of the joint cases, Dutch companies own Dutch subsidiaries through an intermediate company located in another EU Member State. The Dutch companies requested to form a fiscal unity with their indirect subsidiaries. These requests were rejected by the Dutch tax authorities based on Dutch tax law, which stipulates that a fiscal unity could not be formed as a result of the foreign intermediate company. The EU Court of Justice of the EU sided with the taxpayers and ruled that the Dutch fiscal unity regime, as such, is not in line with the freedom of establishment, based on the fact that in a purely domestic situation, it would have been possible to form a fiscal unity. Furthermore, the EU Court of Justice could not find any justification for this restriction.
In the other case, two Dutch subsidiaries owned by the same EU parent company filed a request to form a fiscal unity. The Dutch tax authorities rejected this request as well, as the joint parent company was not resident in the Netherlands. The Court of Justice of the EU ruled that this rejection is also not in line with the EU freedom of establishment, on the same basis as outlined above.
This EU Court of Justice ruling leads to the conclusion that Dutch companies that are associated with each other through an intermediate company or parent company located in another EU Member State should be able to form a fiscal unity for Dutch tax purposes. If you have two or more Dutch entities in your group that have losses and profits and that, on the basis of the Dutch tax law, cannot be joined in a Dutch fiscal unity, please reach out to us and let us evaluate if the EU Court of Justice position could lead to tax refunds and an overall lower Dutch corporate income tax burden going forward.