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New Dutch fiscal unity regime: a long-term project

This is the last blog in a series on three documents published around the 2021 Dutch budget. It deals with a letter from the Dutch government to parliament on the future of the Dutch fiscal unity regime, the Dutch form of tax consolidation (earlier blogs covered the eligibility of substance-less holding companies for the participation exemption and a proposed change to the application of the arm's length principle). 

The letter indicates that the Dutch fiscal regime will change. But, for those of you fearing another major tax change in the near future, you may sit back and relax. The Dutch government does not expect a new system to be effective until 2025 or 2026.

Current regime

The essence of the current fiscal unity regime is that it treats all members of the fiscal unity as one single taxpayer. All assets and liabilities of subsidiaries in a fiscal unity are attributed to the parent and intercompany transactions are completely ignored (with some exceptions to prevent abuse). 

The viability of the system has been put into question following a decision by the European Court of Justice that for each benefit granted by the regime, it should be determined whether that benefit should also be granted in cross-border situations. For example, if a Dutch parent of a fiscal unity borrows funds from a related party and contributes those funds to a subsidiary that is a member of the fiscal unity and which uses the funds to buy a business, the deductibility of interest on the loan is not restricted under article 10a of the 1969 Dutch Corporate Income Tax Act, because a capital contribution within a fiscal unity is ignored. If the subsidiary was established outside the Netherlands and was therefore not part of the fiscal unity, a deduction for the interest could potentially be denied under the same provision. The ECJ decision would require the Netherlands to treat both situations in the same way, i.e., to grant an interest deduction in the cross-border situation as well. 

The consequences of the ECJ decision were addressed in emergency legislation which was introduced with retroactive effect and which took away the domestic benefits in a number of situations so that these benefits would not also have to be given in cross-border situations. The result was a set of rules that even the Dutch government admitted was so complicated that parts of it could not be administrated. And even with these rules, the fiscal unity regime still has elements that are vulnerable from an EU law perspective. Therefore, the government announced a consultation on moving to a more robust (read: EU proof) tax consolidation system.

Opting for change

In the letter, the Dutch government shares the outcome of a public consultation on possible alternatives to the present fiscal unity regime: 

  1. Muddling on with the existing system, fixing it each time it would appear to be in conflict with EU law
  2. Abolishing any form of tax consolidation system
  3. Replacing the existing system with a profit/loss transfer system or a system of pooling of results
  4. Introducing cross-border fiscal unity

Although 7 out of 11 respondents (mostly industry groups) opted for the first alternative, the Dutch government is in favor of further exploring option 3, which had only 3 supporters. 

The reason for this choice is that, according to the Dutch government, the current system has become too complex and will only get worse, if further challenges under EU law are successful, requiring further piecemeal repairs. Furthermore, if EU law challenges are successful, this may have serious budgetary consequences which may even be permanent, if the identified defects cannot be addressed through legislative amendments.

The Dutch government's choice for option 3 also seems inspired by the fact that this system is widely employed among EU Member States - which may be the implicit reason why option 4, a cross-border fiscal unity, was rejected: no other EU Member State has it. The Dutch government apparently believes that now is not the time for the Netherlands to come up with groundbreaking, innovative fiscal legislation.

With regard to the favored option 3, the Dutch government has not explicitly chosen between a system of profit/loss transfer or a system of result pooling. The letter merely lists some features of the current regime that might resurface in a future regime: eligible entities, a 95% ownership requirement, optionality of the regime and voluntary entry into, and exit out of, the regime for individual companies. Furthermore, the letter forecasts some changes compared to the present situation, such as a per-entity determination of the taxable result, including all applicable rules (transfer pricing, interest limitation, investment credits, etc.), and the accompanying administration of these per-entity results (estimated at 200.000 entities).


The preparation of a draft law is left to the next government, which will be formed after the 17 March 2021 elections. The Dutch government estimates that it will take approximately five years before the present fiscal unity system can be replaced with a new system of tax consolidation.

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According to the Dutch government, the current fiscal unity system has become too complex and will only get worse, if further challenges under EU law are successful


mvanderweijden, debrauw, dutch tax, tax consolidation, group tax, groups