Changes to Fiscal Unity Decree
The State Secretary introduced several changes to the Fiscal Unity Decree and also solves issues that arise upon sale of a subsidiary under restrictive conditions.
17 September 2018
When a parent company has the full legal and beneficial ownership of at least 95% of the shares in the nominally paid-up capital of another taxpayer, a request for a fiscal unity can be submitted. An additional condition is that the shareholding in the subsidiary should represent at least 95% of the statutory voting rights and give right to at least 95% of the profit and capital. Once the fiscal unity is in place, corporate income tax is charged as if both entities constitute a single taxpayer and they must jointly file a tax return.
The statutory rules for fiscal unities are complemented by an extensive set of policies laid down in the 2003 Fiscal Unity Decree. On 4 September 2018, the Government Gazette announced a number of changes to this Decree, which basically involve approvals to solve practical issues taxpayers come across. The changes apply with retroactive effect from 20 August 2018.
Coincidence with extreme default risk loan
Immediately prior to incorporation of a fiscal unity, the entities involved should value their reciprocal claims at the lower of value in use and nominal value. The debtors of any doubtful debts will have to realise a gain in this process. But for so-called extreme default risk loans this gain would be unreasonable, since the creditor is not permitted to deduct any write-down losses from its taxable profit. That’s why the State Secretary now approved excluding debt write-down at the level of the debtor from calculation of the profit insofar as write-down losses are non-deductible.
Contract of sale with restrictive conditions
Another relevant approval relates to the sale of shares in a subsidiary under restrictive conditions, for instance when a share transfer is subject to a supervisory authority approving the share sale. The seller’s control is usually limited in the intervening period, in the sense that the buyer’s authorisation is required for certain legal acts - basically acts that may affect the value of the shares, such as paying dividends and appointment or dismissal of directors. The seller subsequently no longer meets the control requirement, while the buyer does not yet have the full legal and beneficial ownership of the shares.
As a situation in which the subsidiary becomes temporarily independently liable to pay tax should be avoided, the State Secretary approved under certain conditions that the fiscal unity may be maintained in the period between the drafting of the contract of sale and the actual legal transfer. The first condition is that limitation of the seller’s control should only serve to keep the value of the shares in the subsidiary intact. Furthermore, the seller and the consolidated subsidiary must submit a written request to the Inspector within two weeks. Finally, the period until the legal transfer of the shares may not be too long: the share transfer should take place within three months after realisation of the sale contract. Only if this period is exceeded due to urgent circumstances, a new request may be submitted to the inspector.
The amended Fiscal Unity Decree also includes an approval relating to cash companies. Shares in these companies are not considered to be held as inventory, so they can still be included in a fiscal unity. This is, however, subject to the condition that the “discount” upon acquisition and the “upcount” upon sale of the cash company are included in the profit for the year in which the acquisition or sale took place.
Losses upon deconsolidation
When an existing fiscal unity is included in a new fiscal unity with a new parent company, losses of that former fiscal unity qualify as pre-consolidation losses of the former parent company. In such situations, a strict interpretation of the law would not permit losses to be “taken along” upon subsequent deconsolidation of a subsidiary from the former fiscal unity. The State Secretary aims to avoid this and now permits such subsidiaries to take along their attributable losses. This does, however, require a joint written request by the old and the new parent company and the deconsolidated subsidiary.
Source: Decree of 20 August 2018, 2018/121069, Government Gazette 2018, 49422