Doing Business in the Netherlands 2012 - American Chamber of ...

of the taxpayer, the so-called “goodwill gap” will be taken into
account for the determination of the equity. The goodwill gap refers
to a reduction of the fiscal equity of the acquisition holding resulting
from the formation of the fiscal unity or (de)merger. For Dutch
corporate income tax purposes, the hidden reserves and goodwill of
the Dutch target company are eliminated in the consolidation. It is
now proposed that during ten years after formation of a fiscal unity or
(de)merger, the fiscal equity should be increased annually with a
proportional part of this goodwill gap. Debts on which the interest is
not tax deductible on the basis of other corporate income tax
provisions, will not need to be taken into account for determining the
debt level.
18.7 Flow-Through Entities
Dutch entities that do not incur a genuine risk in respect of intra-group
loans or royalty transactions are not permitted to credit the foreign
withholding taxes related to such interest or royalty income. The
flow-through entity is in fact treated as an intermediary company.
Technically, the denial of the credit is achieved by excluding the
interest and royalties received and paid from the tax base in the
Netherlands. The interest and royalties received and paid are
excluded from the Dutch tax base under the following conditions:
a) The Dutch entity receives and pays interest or royalties to and
from a foreign entity within the same group.
b) The interest and royalties received and paid relate directly or
indirectly to a loan or a royalty transaction.
c) The transactions are “closely connected.”
d) The flow-through company does not incur a genuine risk that
may affect its equity.
A flow-through company is deemed to incur a genuine risk in respect
of a loan if the equity is at least 1% of the outstanding loans, or
182 Baker & McKenzie