Tax Lawyers / Fiscalisten

Tuesday, 12 July 2016

Dutch tax consequences “per element approach” Groupe Steria case

On 8 July, 2016, the Dutch Supreme Court has requested the ECJ to clarify whether the ‘per-element approach’ adopted by the ECJ in the Groupe Steria case is (and to which extent) applicable for the Dutch tax consolidation regime (fiscal unity).

Background: Groupe Steria SA

On 2 September 2015, the ECJ decided in the Groupe Steria case that a specific tax advantage that results from being included in the French equivalent of a Dutch fiscal unity cannot be limited to domestic situations, by merely referring to the domestic scope of the fiscal unity regime.

It is unclear if the decision in the Groupe Steria case implies that a tax advantage should be granted in the Netherlands if (i) the same advantage would have been granted if a fiscal unity was formed and (ii) the only reason for not being able to form a fiscal unity is that the participation is located in another EU state.

Preliminary questions posed to the ECJ in two cases

The specific elements of which the ECJ will determine whether they are in breach of EU law are:
(a) The limitation of the deductibility of interest expenses on an intra-grouploan,the funds of which are used to finance a capital court has decided upon the above-mentioned cases.

(b) The non-deductibility of foreign currency exchange losses on EU participations;

The Dutch interest deduction limitation rules to prevent base erosion disallow deduction of interest paid by a Dutch corporate taxpayer to a related party where the relevant debt is connected with, inter alia, a capital contribution in a subsidiary. If the taxpayer would have formed a prior fiscal unity with the subsidiary, the capital contribution would not have been recognized for tax purposes as a result of the consolidation. As a result the interest deduction limitation rule would not have been applied. The fiscal unity regime however is restricted to Dutch resident subsidiaries and the effect of the interest deduction limitation rule can therefore only be avoided in domestic situations by way of forming a fiscal unity. The Supreme Court requests the ECJ to clarify whether the application of the interest deduction limitation, in light of the beneficial effect of a fiscal unity in purely domestic situations, infringes the EU freedom of establishment.

The same clarification is requested on the non-deductibility of currency losses on EU subsidiaries under the Dutch participation exemption regime. Had the taxpayer and the subsidiary been included in a fiscal unity, a currency loss related to the assets of the consolidated subsidiary would have been deductible.

Practical implications

These cases are expected to provide more clarity on the question which specific elements of the Dutch fiscal unity regime should also be available in cross-border EU situations. The outcome of the decision of the ECJ and the Dutch Supreme Court may have a substantial impact on Dutch companies owned by a EU company and / or owning EU participations. It should be noted that the potential advantages if a fiscal unity would have been possible, are broader than the specific elements in these cases and may potentially also include loss restriction rules, participation debt rules etc.

It is therefore important to examine whether any tax advantage is not available because on the impossibility of forming a cross-border fiscal unity. To preserve your rights, it is recommended to file an objection and to request the Dutch tax authorities to postpone their decision until the Dutch national court has decided upon the above-mentioned cases.

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