On 25 October 2017 the Dutch government announced emergency measures to prevent the Dutch tax consolidation rules being used in international tax avoidance structures. The measures are a direct response to ongoing litigation before the EU Court of Justice, in case the court rules against the Dutch tax authorities. The case itself involves a Dutch company that was denied a deduction for an intra-group loan that it had used to fund equity capital in an Italian subsidiary.
The Dutch rules see this as potential avoidance and deny the deduction unless, in essence, the taxpayer can provide evidence of commercial motives. The Dutch company’s argument was that these rules would not have applied if it had been allowed to form a tax consolidation unit with the Italian subsidiary to which it had contributed the equity. But this would only have been possible in the case of a Dutch subsidiary. An interim opinion in the case has held that excluding non-Dutch subsidiaries in these circumstances was an infringement of EU law. Instead of extending the benefits of tax consolidation to this kind of cross-border arrangement, the Dutch government’s move would simply deny the corresponding benefits in purely domestic arrangements. The measures would affect a number of tax consolidation benefits, in particular certain interest deductions, loss carry-overs, and dividend withholding tax benefits.
