Tax Lawyers / Fiscalisten

Wednesday, 08 March 2017

Updated Decree Participation Exemption released

A new Decree Participation Exemption (the “Decree”), dated 20 January 2017, has been released. The Decree describes further guidelines on the participation exemption regime and replaces the previous Decree of 12 July 2010. The Decree provides for a large number of editorial changes as well as several new approvals and clarifications on the participation exemption rules.

Participation exemption - general
Provided the conditions for the participation exemption are met, a Dutch corporate taxpayer is exempt from Dutch tax on all benefits connected with a qualifying shareholding, including cash dividends, dividends in kind, hidden profit distributions, capital gains, and currency exchange results. The requirements for applying the participation exemption are rather broad as a result whereof this regime is considered a key tax feature of the Netherlands.

The participation exemption also applies to losses related to qualifying subsidiaries, meaning that capital losses are in general non-deductible. However, subject to certain conditions, a capital loss may be tax deductible if the subsidiary is formally liquidated.

Specific clauses apply for the situation that the participation exemption requirements are not met and the conversion of impaired debt into equity or the disposal of an impaired debt.

The Decree provides for further guidelines on all participation exemption rules.

Main aspects of the Decree
The Decree provides for new approvals and perspectives on the following topics:

  • Rules on the calculation of 5% minimum threshold in case of non-voting / non-profit participating shares
  • Scope application participation exemption on currency hedging results
  • Participation in US IC-DISC: non-application participation exemption
  • Tax burden requirement if the participation is a tax exempt entity
  • The term year for a specific clause with respect to no longer meeting the 5% threshold
  • Currency hedging and conversion of impaired debt into equity
  • Liquidation loss rule in case of long-term liquidation processes and simplified procedures
  • Effect group relief on liquidation loss facility
  • Reference point for being affiliated entities in liquidation loss rules
  • Term business enterprise in liquidation loss exception for continuing a business
  • Sacrificed amount participation upon a merger between “sister” companies

In addition, some approvals and standpoints have been clarified and others have been removed. The deletions relate to the fact that the view was no longer relevant or could already been derived from parliamentary proceedings.

To conclude
The Decree was published on 23 February 2017 and has effect from 20 January 2017.  The main changes in the detailed rules for the participation exemption laid down in the Decree relate to the liquidation loss rules. It may be prudent to verify whether the new Decree may have an impact on the tax position of a Dutch company claiming the participation exemption on one or more subsidiaries.

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