Tax grouping between sister companies

According to the Court of Justice of the European Communities, there should be scope for tax groupings between a company whose subsidiary company is neither based in the Netherlands nor operates a permanent establishment here and the latter subsidiary company’s own subsidiary (i.e. the grandparent’s sub-subsidiary), or between Dutch-based sister companies. This prompted the Court to rule in June 2014 that the Dutch tax entity regime was at odds with European regulations.

Notwithstanding the above ruling, the Gelderland District Court recently disallowed a tax grouping involving an Israeli-based grandparent and Israeli-based parent company (without a permanent establishment in the Netherlands) and their Dutch-based (sub) subsidiary companies. The District Court also disallowed a tax grouping between the Dutch-based sister companies, arguing that the situation resembled that of the shares being held by a Dutch-based parent company, in which latter scenario a tax grouping not involving the parent company would not be permissible either, so that there could be no question of unequal treatment.

Read our article Tax Entity Decree