Transitional regime for emergency repairs to tax entity regulations

The State Secretary for Finance in response to questions on the subject tabled by Lower House MPs has confirmed that a transition measure is being introduced to take the edge off the impending emergency repairs to the corporation tax entity regime. The object of the transitional regime is to ensure that the repairs to the interest deduction restrictions for the period to 31 December 2018 inclusive should not affect interest amounts, costs and/or foreign exchange results associated with any indebtedness – be it to an affiliated entity or to an affiliated natural person – as at 25 October 2017 at 11.00 a.m. in connection with any one of the following juristic acts:

• profit distribution or repayment of paid-in capital to an affiliated entity or natural person,
• capital contribution at the level of an affiliated entity;
• acquisition or expansion of a participating interest in an entity resulting in the latter gaining affiliated entity status.

The juristic acts should likewise have been finalised prior to 25 October 2017. The total interest amount per 12 months has been capped at € 100,000, which maximum if exceeded will disable the transition measure altogether, which in turn will result in the interest deduction restrictions being applied to the full amount in interest to affiliated natural persons or entities as if no tax entity at all had been entertained.

It is the State Secretary’s expectation that the above transition measure will enable SME businesses to make the necessary changes to their funding arrangements while the transitional regime lasts and in doing so, ward off any potentially negative effects of the tax repair measures.

Relevant article: Go-ahead for emergency repairs to tax entity regime

Dutch version: Overgangsregeling spoedreparatie regime fiscale eenheid