Fiscal unity in the corporation tax
In The Netherlands, Ltd.’s and public limited companies (bv’s and nv’s) are obliged to pay corporation tax (vennootschapsbelasting) over their profits. With a fiscal unity in the corporation tax, various companies of a business group are viewed as one entity for corporation tax (in Dutch: vennootschapsbelasting). The results of a subsidiary (or several subsidiaries) are then attributed to the parent company. Fiscally the activities and the capital of the subsidiary are therefore part of the activities and capital of the parent company. However, legally, the subsidiary remains its own entity. Creating a fiscal unity has a number of interesting advantages. However, there are also some disadvantages when creating a fiscal unity in the corporation tax. In this article you will learn more about why creating a fiscal unity might be interesting for you.
*** On April 24th 2019 the Law Emergency Repair Fiscal Unity was accepted. In this law it has been included that the current fiscal-unity arrangement in the corporation tax must be followed by a group regulation. In September 2020 it had been determined that creating this regulation will be suspended. While the fiscal unity is currently a legitimate construction, this will change in the future. Make sure to remain informed regarding the legislation of the fiscal unity, if you are considering to make use of this contruction.***
Benefits of the fiscal unity in corporation tax
There are a number of good reasons to list companies as a unity in the corporation tax. For example, in this construction ‘horizontal loss compensation’ is possible; the losses that a company has made within a business group can be compensated with the profits of a different company in that same year. Or in short; you can move assets around. Profit and capital movement within the fiscal unit are not taxed in principle. There is no profit gain between company transactions that are part of the unity.
This means that with internal business group transactions, you do not need to worry about the correct price, because silent reorganisation is possible. Within the fiscal unity, regroupings can take place without this having consequences for the corporation taxes. Administrative obligations can be decreased, because you will only need to do one declaration of corporation tax in total. You can therefore, have both tax benefits by creating a fiscal unity and simplify your companies’ administration.
Disadvantages fiscal unity in corporation tax
Creating a fiscal unit for the corporation tax is not always beneficial. For example, a disadvantage of the fiscal unit is that the sacrificed amount of the joint participation is lost, so that with a possible later liquidation a smaller liquidation loss can be deducted from the profit. Loss compensation exceeding calendar years, also contains a few limitations. Especially concerning the compensations for loss over the moment of entering the fiscal unit and the moment when the fiscal unit is terminated.
The investment deduction will also only apply once. That means that all investments of the fiscal unit are included together. There is a maximum amount of investments that can be deducted. This can be disadvantageous when all the companies together exceed the maximum, while this would not be the case per company.
In addition, all associates that belong to the fiscal unit are jointly and severally liable for the corporation tax of the fiscal unit in principle.
Conditions Fiscal unity
Do you think it can be advantageous to combine companies into a fiscal unit in the corporation tax? Then it is the question whether the companies meet the requirements that the Tax Authorities have set. When the conditions below are met, your request to form a fiscal unit will be honoured in principle.
- The parent company owns at least 95% of the shares of the subsidiary.
- The parent company is entitled to at least 95% of the profit and capital of the subsidiary;
- The parent company has at least 95% of the votes of the subsidiary;
- The parent company has to be a private company, public limited company, a mutual company, cooperation, foundation or association that acts as a housing cooperation or a foreign legal entity that is comparable to one of these;
- The subsidiary has to be a private company or public limited company or a foreign legal entity that is comparable to one of these;
- The parent company and subsidiary must handle similar fiscal years and profit determinations;
- Parent company and subsidiary are factually established in The Netherlands.
Creating a fiscal unit
When you want to create a fiscal unit, all partnerships together will have to submit a request with this form (in Dutch) with the tax office of the parent company. But do pay attention: it is advisable to carefully check all the fine prints. It is important to determine if these are not disadvantageous for your future fiscal unit. In addition there are numerous details that make it complicated to apply the unity policy to your specific situation. Finally, take note: a fiscal unit for the corporation tax is not the same as a fiscal unity for the VAT.
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*) If you experience difficulties navigating the Dutch webpages or forms, we are happy to help you.