1E9Ct5D

Doing business in the Netherlands 27passive permanent establishments in low-taxationcountries. There is an offset system for these. Basedon the transitional law existing rights and claimsthat were present upon the introduction of the propertyexemption are respected. These are dealt within accordance with the existing system.Fiscal unityIf the parent company owns at least 95% of theshares of a subsidiary, the companies can submit ajoint application for fiscal unity to the tax authorities,whereby the companies will be viewed as a singleentity for corporate income tax purposes. The95% shareholding should represent 95% or moreof the voting rights and at least a 95% entitlementto the subsidiary’s capital. The subsidiary is therebyeffectively absorbed by the parent company. One ofthe most important advantages of fiscal unity andits tax consolidation of companies, is the fact thatthe losses of one company can be set off againstthe profits of another company in the same group.The companies are thereby also entitled to supplygoods and/or services to one another without fiscalconsequences, and they are also entitled to transferassets from one company to another.Fiscal unity is only permissible where all of the companiesconcerned are effectively established in theNetherlands. It is however possible to include in thetax consolidation of the fiscal unity a Dutch permanentestablishment of a non-resident group. In addition,the parent company and the subsidiaries mustalso use the same financial year and be subject tothe same tax regime.Restriction on deduction for interest paid on holdingstaken overAs of 1 January 2012 there is within the fiscal unityregime a restriction on the deduction for interestpaid on a take-over liability. If a Dutch company istaken over with borrowed money, the interest on thetake-over liability can in principle no longer be setoff against the profit of the company taken over. Thetake-over interest can however still be deductedup to an amount of 1 million Euro or in the case ofhealthy financing. This is the case if the take-over liabilityin the year of take-over is not more than 60%of the take-over price. This percentage is then reducedover 7 years, by 5% per year, to 25%. Severalexceptions as well as thresholds may be applicableto this restriction rule.Interest deduction restrictionsOver the years the tax legislator has been increasinglyaiming at discouragement of the (international)financing of Dutch operating activities throughexcessive debt. Effectively the corporate incometax law provides for certain restrictions to the deductionof financing costs.Anti-base erosion regulationThe anti-base erosion rules in Dutch corporationtaxation restricts the deduction of financing costsof intragroup loans if these loans in essence relateto the conversion of equity into financing throughdebt without sound business motives. This comprisesloans relating to inter alia dividend distributions,repayment of formal and informal capital and capitalcontributions. On the other hand, the anti-baseerosion rules also entail the possibility to overrulethis restriction in tax deduction of the relating financingcosts if the taxpaying company can demonstratethat the sound business motive for this debtfinancing or the interest payment is effectivelytaxed at a rate of 10% or more. With effect from 1January 2008 it is to be taken into consideration thatthe existing anti-base erosion regulation has beentightened up further. The Dutch tax authorities mayfrom now on demonstrate that in the case of a grouptransaction no business considerations are involved,even if the recipient pays 10% or more tax abroad.In that case the interest paid within the group is notdeductible. The interest for ordinary business transactionsdoes however remain deductible. Evidence tothe contrary is however possible with the so-calledevidence to the contrary ruling. If the requirementsfor this ruling are met, the deduction of interest isrestored.Restriction on loans for investments in participationsTo restrict the deduction of interest on loans forinvestments in participations qualifying for the participationexemption provision, a new rule has beenintroduced in the corporate income tax act with effectfrom 1 January 2013. The restriction rule takeseffect for the financial (tax) years commencingon or after 1 January 2013. With this new rule thelegislator aims to revoke the deduction of interestinsofar as the financing costs for investment participationloans are deemed excessive and offensive.