No fiscal unity between Dutch subsidiaries of Israeli parent company


No fiscal unity between Dutch subsidiaries of Israeli parent company

AG Wattel concludes that no obligation arises from the tax treaty with Israel to permit a fiscal unity between exclusively Dutch (sub)subsidiaries of an Israeli parent company.

20 December 2016

Dutch version

Permanent establishment

The decades-old Dutch fiscal unity regime rules in principle only permit a fiscal unity between companies when both the parent company and the subsidiary/subsidiaries are established in the Netherlands. Yet, every rule has an exception. If certain conditions are met, a foreign resident company can be part of a Dutch fiscal unity if it conducts a business in the Netherlands using a permanent establishment. This requires the company to be established in an EU Member State, one of the BES islands, Aruba, Curacao, or Sint Maarten, or in a country with which the Netherlands has concluded a tax treaty that includes a provision that prohibits discrimination of permanent establishments.

Court of Justice

Pressed by events in EU Court of Justice and Dutch Supreme Court case law, these rules underwent sweeping changes very recently. The changes essentially imply that two basic alternatives are now possible in which an EU/EEA Member State resident company plays a role: the sister companies fiscal unity and the parent-subsubsidiary fiscal unity. The first alternative concerns a fiscal unity between two (or more) Dutch (sub)subsidiaries whose shares are held by a company resident in another EU/EEA Member State (the top holding). In the parent-subsubsidiary fiscal unity a Dutch parent company holds the shares in a consolidated Dutch subsubsidiary through a company established in another EU/EEA Member State (the intermediate holding company). A relevant difference with the existing possibility to consolidate a foreign company with a Dutch permanent establishment is that in the new alternatives neither the top holding nor the intermediate holding company are effectively consolidated. The profit nor the capital of such companies is allocated to a Dutch company for the levy of corporate income tax.

Israeli parent company

The Dutch Supreme Court is currently dealing with a highly relevant case in which the shares in a number of Dutch (sub)subsidiaries are (indirectly) held by three Israeli companies. One of these companies is the top holding company. The structure is such that a Dutch fiscal unity would have been possible if all three Israeli companies would have been established in the Netherlands. However, since none of the Israeli companies conducts a business in the Netherlands (and Israel is not part of the EU/EEA), the statutory requirements do not permit a fiscal unity for the Dutch part of the group - not even after the recent statutory amendment.

Yet the interested party in this case argues that a fiscal unity for the Dutch part of the group should be permitted under the tax treaty between the Netherlands and Israel. This treaty includes a provision that prohibits the Netherlands from taxing a Dutch company with an Israeli shareholder more heavily than a Dutch company with a Dutch shareholder. It is an established fact in the proceedings that permitting a fiscal unity between the Dutch companies would have led to a reduction of the corporate income tax payable. Since that is not possible under the current conditions, the Israeli shareholders are taxed more heavily.

Advocate General Wattel concluded in that case that no fiscal unity can be formed between the Dutch companies, arguing that the treaty provision does not relate to group regimes (such as the Dutch fiscal unity regime). The AG infers this from legislative history and the OECD comment on the identical provision in the OECD Model Tax Convention, as well as from a discussion conducted on this issue within the OECD about ten years ago. AG Wattel believes that even if the treaty provision would relate to group regimes, the Netherlands still does not have to permit a fiscal unity between only those companies that belong to the Dutch part of group. After all, the Dutch statutory provisions do not permit a parentless fiscal unity either. Hence, these provisions are not discriminatory. According to the AG, EU law does not compel to permit the desired fiscal unity either, because Israel is a so-called third country where the freedom of establishment does not apply. Although the free movement of capital does apply for third countries, the AG argues that the Dutch fiscal unity does not come under the definition of movement of capital.


The final outcome of this case is crucial for the national and international tax law practice. Many Dutch tax treaties (including the treaty with the US) include a comparable discrimination prohibition. If the Dutch Supreme Court does not follow Wattel’s opinion, and permits a sister fiscal entity under that provision, a fiscal unity between - e.g. - Dutch (sub)subsidiaries of a US parent company will likely become possible. If so, the State Secretary for Finance is quite likely to submit the entire fiscal unity regime to a thorough review. Until the Supreme Court rules in this case we will surely be in suspense.

Source: AG November 30, 2016, 16/02919, ECLI:NL:PHR:2016:1240

Vond u dit nuttig?