The Regime For Cross-Border Fiscal Unities

This is contribution number 17 by KPMG Meijburg & Co regarding the Dutch regime for cross border fiscal unities.

Introduction

Until March 1994 the Dutch Ministry of Finance and virtually all tax practitioners assumed that the fiscal unity requirements had to be applied rigidly. As a result fiscal unities could only include resident companies which had been incorporated under Dutch law for corporation income tax purposes.

In March 1994, however, the Dutch Supreme Court allowed a fiscal unity to include a subsidiary, actually resident in the Netherlands but incorporated under foreign law (i.e. Netherlands Antilles law). The Supreme Court based this decision on the non-discrimination provision of the applicable Tax Arrangement.

Pursuant to this court decision, the Ministry has reconsidered its views on cross-border fiscal unities. In August 1994 the Undersecretary of Finance published the conditions which should be met by entities incorporated under foreign law to be allowed to participate in a Dutch fiscal unity, either as the parent company or as a subsidiary.

Generally speaking the conditions for cross-border fiscal unities can be summarized as follows:

1) the entity should have a legal form which, with respect to its nature and organizational structure, is comparable to the Dutch legal entities known as "Naamloze Vennootschap" and "Besloten Vennootschap". With respect to entities incorporated in one of the EU Member States, it is likely that the legal entities mentioned in the appendix to the Parent-Subsidiary and the Merger Directive shall qualify for inclusion in a fiscal unity (for instance, German GmbH, French S.A., UK Ltd.).

2) the entity should be resident in the Netherlands, i.e. managed and controlled from the Netherlands.

Remaining uncertainties

The Dutch Ministry of Finance has not yet taken position regarding the possibility of:
- fiscal unities between a Dutch subsidiary and a non-resident parent company which is actually established abroad;
- fiscal unities to include the Dutch permanent establishment of a non- resident company, not incorporated under Dutch law.

In addition uncertainty exists about the consequences of the subsequent shift of residence by a member of the fiscal unity.

This message is most likely to be relevant for multinationals, either resident in the Netherlands or with Dutch subsidiaries or permanent establishments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Further information can be obtained from Mr Alfred GM Groenen, MCL, KPMG Meijburg & Co, Amsterdam (Netherlands); fax 31 (20) 656 1247.

Copyright Mondaq Ltd 1995 Tel +44 171 820 7733.