Dutch Court of Appeals Allows Sister Companies to Form Fiscal Unity for Income Tax Purposes

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. As a result, 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 two of the joint cases, Dutch companies own Dutch subsidiaries through an intermediate company located in another European Union (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 because of the non-Dutch intermediate company. The EU Court of Justice 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 line with the EU Court of Justice ruling, the Dutch Court of Appeals now ruled that the Dutch parent company is allowed to form a fiscal unity with their indirect held Dutch subsidiaries.

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. In line with the EU Court of Justice ruling, the Dutch Court of Appeals now ruled that two Dutch subsidiaries owned by the same EU parent company are allowed to form a fiscal unity.

This Dutch Court of Appeals 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 corporate income 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 contact us, and we will evaluate if the Dutch Court of Appeals ruling could lead to a lower Dutch corporate income tax burden going forward.