NETHERLANDS Law and Practice Contributed by: Friederike Henke, Ingrid Cools, Philip ter Burg, IJsbrand Uljée, Suzan van de Kam and Epke Spijkerman, BUREN
more, two Dutch tax-resident subsidiaries can form a fiscal unity if their joint parent resides in another EU or EEA member state. A new tax consolidation system is under discussion already for a long time but does not seem to have much traction. Fiscal Unity for Dutch VAT Purposes A VAT group can be created by two or more persons established within an EU member state, who, while legally independent, are closely bound to each other by financial ties (ie, more than 50% shareholding), organisational ties (ie, central management) and eco - nomic ties (ie, same or related activities or suppliers). A VAT group is treated as one VAT entrepreneur. Transactions between the members of a VAT group are not subject to VAT. The right to deduct input VAT is based on the activities of the VAT group as a whole. The VAT group regime only applies if each member of the VAT group qualifies as a VAT entrepreneur. 5.5 Thin Capitalisation Rules and Other Limitations The Dutch earning stripping rules limit the deduction of excessive interest expenses related to intra-group and third-party payables for Dutch corporate income tax purposes. Under these rules, the starting point is to determine the Dutch taxpayers’ so-called interest expense excess, which is the amount by which the Dutch taxpayers’ tax-deductible interest expenses exceed their taxable interest income. The deductibility of the interest expense excess is limited to 24.5% of the taxpayers’ EBITDA (carving out tax-exempt income) or a safe harbour threshold of EUR1 million, whichever is higher. Interest disallowed under the earnings stripping rule can be carried forward to later years without any time limitations. Dutch corporate income tax law includes several other rules based on which deduction of inter - est may be denied, including the anti-tax base erosion rules – see 5.7 Anti-Evasion Rules . 5.6 Transfer Pricing For Dutch tax purposes, transactions between affili - ated entities must be performed under the same
terms and conditions as would be agreed between non-affiliated entities under similar circumstances (the so-called “arm’s length principle”). If the terms and conditions of an affiliated party transaction are not at arm’s length, the transaction is taxed as if they had been. For Dutch transfer pricing purposes, companies are considered to be affiliated if one entity participates (directly or indirectly) in the management, control or capital of another entity, or if the same person par - ticipates (directly or indirectly) in the management, control or capital of two entities. Dutch taxpayers must have documentation available showing that the conditions of affiliated party trans - actions are at arm’s length. In addition, multinationals with a consolidated group turnover of at least EUR750 million in the preceding year are required to file coun - try-by-country (CbC) reports containing detailed infor - mation on the transfer pricing policy and the allocation of assets and personnel within the group. CbC reports are exchanged automatically with the tax authorities of all countries in which the multinational group oper - ates. Furthermore, Dutch taxpayers that are part of a multi - national group with a consolidated turnover of at least EUR50 million in the preceding year must prepare both so-called “master files” and “local files”. In addition, rules apply based on which hybrid mis - matches that arise under the application of the arm’s length principle are neutralised. Based on these rules, downwards fiscal profit adjustments, recognition of losses and value increases of assets acquired from affiliated parties (the value increases are also referred to as “informal capital contributions” or “deemed dividend distributions”) under the application of the arm’s length principle will be denied if, in short, the taxpayer cannot reasonably prove that a correspond - ing upwards adjustment will be included in the tax base in the jurisdiction of the affiliated party. 5.7 Anti-Evasion Rules Dutch corporate income tax law includes various rules targeting tax evasion, such as limitation of inter - est deduction rules preventing tax base erosion, con -
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