Tax Entity Decree

The Court of Justice of the European Communities earlier this year in reply to preliminary questions raised by the Amsterdam Court of Appeal found the Dutch regime governing tax entities within the corporation tax sphere wanting in places. The Amsterdam Court of Appeal had queried the impossibility of establishing a tax entity between a parent company and a sub-subsidiary company where the intermediate subsidiary company was established abroad. According to the European Court of Justice, it should likewise be possible for a tax entity to be created between Dutch-based sister companies as the subsidiaries of a foreign-based parent company. The Amsterdam Court of Appeal in three rulings tied in with the judgment of the European Court of Justice. 

The Dutch State Secretary for Finance in response to the EU case law and the rulings by the Amsterdam Court of Appeal has since amended the Tax Entity Decree, by endorsing – in anticipation of the requisite legislative amendment – the creation of a tax entity between sister companies via a principal holding company (top entity) or that of a tax entity via one or more intermediate companies, with the tax entity being made up of the Dutch-based companies whereas the principal holding company or intermediate company (as appropriate) remains outside the tax grouping. 

In the event of two or more Dutch-based sister companies of one and the same principal holding company forming a tax grouping, their petition to the relevant effect should disclose which of the companies is henceforth to be regarded as the parent and which as the subsidiary. Parent company status is to be denied to any company whose share capital is participated in by any of the other companies forming part of the same tax entity. 

In the event that a tax entity is created through an intermediate company that itself forms no part of the tax grouping, the stake in the intermediate company in question comes under the holding exemption regime.