Pre-consolidation holding company loss can be set off against profit of newly consolidated subsidiary | Deloitte Netherlands

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Pre-consolidation holding company loss can be set off against profit of newly consolidated subsidiary

The Supreme Court ruled that a pre-consolidation holding company loss within a fiscal unity can be set off against the profit of a subsidiary that has been consolidated from the moment of its establishment.

24 June 2021

Until 1 January 2019, the corporate income tax system included a holding company loss scheme, which continues to apply to holding company losses incurred before this date. The scheme stipulated that a loss incurred by an entity that spends essentially the entire year almost exclusively on holding participations or financing affiliated entities (a holding company) could only be set off against profits made in a year in which the entity also qualifies as a holding company. The Supreme Court recently pronounced a judgment on the application of this holding company loss scheme in conjunction with the fiscal unity regime.

Set-off pre-consolidation holding company loss against profit fiscal unity

In 2010, X BV incurred a EUR 90,115 holding company loss. In 2015, it set up a new subsidiary (Y BV), with which it entered into a fiscal unity from the moment of incorporation. The fiscal unity generated a EUR 16,420 consolidated profit for 2016. This result consists of a EUR 22,074 profit allocable to Y BV (the operating subsidiary) and a EUR 5,654 loss allocable to X BV (the parent company).

X BV's 2010 pre-consolidation holding company loss was set off against the consolidated fiscal unity profit in the 2016 tax return. As a result, the fiscal unity’s reported taxable amount for 2016 was nil. However, the inspector refused to set off this loss because X BV itself did not generate any holding profit in 2016. The Court agrees with the inspector that allocating the profit of the newly incorporated subsidiary to X BV does not mean that this result qualifies as a holding company profit. After all, Y BV is an operating company. Set-off of the pre-consolidation holding company loss of X BV is not possible under these circumstances. X BV subsequently lodged a leap-frogging appeal.

Grammatical interpretation by the Supreme Court

While the Court still took the position that a different interpretation of the holding company loss scheme in connection with the relevant provision in the Fiscal Unity Decree (article 5(4)) would be contrary to the aim and purpose of these regulations, the Supreme Court reached an entirely different conclusion. A grammatical interpretation of the holding company loss scheme and article 5(4) of the 2003 Fiscal Unity Decree implies that the pre-consolidation holding company loss of X BV can effectively be set off. Allocating Y BV’s profits to X BV does not imply that for the application of the holding company loss scheme Y BV’s operations, too, are allocated to X BV. Both provisions have their own background and rationale. Although the concurrence of both regulations in this case leads to an outcome at odds with the aim and purpose of these provisions individually, this does not justify an outcome contrary to the clear wording of these provisions.

Parent company X BV independently qualified as a holding company in 2016. And by allocating Y BV’s result on the basis of article 5(4) 2003 Fiscal Unity Decree, X BV made a profit, with which X BV’s 2010 holding company loss could be set off. The opinion of the Court to the contrary demonstrates an error of law.


Source: HR 11 June 2021, 20/00239, ECLI:NL:HR:2021:884

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