Transitional measure in fiscal unity emergency remedial scheme
The State Secretary expands the emergency remedial measures for the Dutch fiscal unity regime by adding a transitional measure involving interest deduction limitation preventing profit shifting.
2 May 2018
On 22 February 2018, the Court of Justice of the European Union (CJEU) judged in two proceedings referred to it by the Dutch Supreme Court. The CJEU essentially ruled that the Netherlands is not permitted to offer domestic groups the possibility to escape an anti-abuse provision by forming a fiscal unity, while such a fiscal unity is not permitted in cross-border situations. With this judgment, the CJEU followed the opinion previously delivered by the Advocate General. Immediately after this opinion was delivered, the State Secretary published a letter announcing emergency remedial measures. These measures will be presented in a bill in the second quarter of 2018. If the House of Representatives and the Senate adopt the bill, the measures will take effect with retroactive force to 25 October 2017, 11:00am. As a result, domestic fiscal unities will be deemed not to exist for the application of specifically mentioned statutory provisions, including the limitation of interest deduction preventing profit shifting.
Responding to Parliamentary questions about the remedial measures for fiscal unities, the State Secretary indicated that he intended to make a concession regarding application of the limitation of interest deduction preventing profit shifting by introducing a temporary transitional measure. This transitional measure is particularly aimed at small and medium sized businesses (SMEs), and regulates that the emergency remedial measures for limitation of interest deduction preventing profit shifting will - under certain circumstances - not apply up to and including 31 December 2018. To qualify for this concession, entities should have existing debts dating back prior to announcement of the emergency remedial measures, which already met all the conditions for application of the anti-profit shifting provision. Furthermore, the aggregate amount of the interest paid on these debts over a 12-month period may not exceed EUR 100,000. No concession applies for taxpayers that paid a higher amount in interest; not for the first EUR 100,000 of interest paid either. To avoid abuse, the transitional measure does not apply if the Inspector demonstrates that the debt or the related legal act was not predominantly based on business motives.
With the transitional measure the State Secretary aims to enable SME taxpayers to make the group debt for which interest deduction is limited disappear. However, the measure equally applies to other taxpayers that pay less interest than EUR 100,000 annually. During the transitional period, the effect of the emergency remedial measures can be avoided for the future. The answers to the Parliamentary questions indicate that this can, for instance, be done be restructuring the - internal - group financing. The State Secretary also mentioned legal mergers, although these do not normally provide a solution.
The emergency remedial measures are just a prelude to a future-proof group scheme, whose precise form and shape are yet unclear.
Source: State Secretary - Finance no. 2018ZO285, 20-4-2018, Answers to Parliamentary questions