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Dutch Fiscal Unity Regime in Breach of EU Law

On June 12, 2014, the European Court of Justice (ECJ) ruled that, for corporate income tax purposes, the Dutch fiscal unity regime is in breach of EU law.

The Dutch fiscal unity regime

The fiscal unity regime provides for the tax consolidation of companies within a group by means of the filing of one consolidated tax return. As a consequence, the losses of one company can be offset against the profits of another group or company in the same fiscal year. Furthermore, transactions between group companies that are joined in fiscal unity are not recognized, because the fiscal unity is treated as one taxpayer. Therefore, the assets of the fiscal unity can in principle be transferred within the group without corporate income tax being levied.

However, only Dutch resident entities of a group are allowed to form a fiscal unity. More specifically, a fiscal unity is solely possible if it involves Dutch-based companies that are held directly or indirectly for at least 95 percent. Indirectly held companies may solely be consolidated in the fiscal unity when the intermediate company has been consolidated in the fiscal unity as well.

Dutch Fiscal Unity Example








Three consolidated EU cases

The following consolidated cases were brought before the ECJ with the request to determine whether the Dutch conditions to form a fiscal unity are aligned with EU law. The three cases involved two types of fiscal unity requests (both requests were denied by the Dutch tax authorities):

(i) Similar to example B (see above) - an incorporated parent company and tax resident in the Netherlands, holding an intermediate Dutch company tax resident in Germany, in turn holding a second-tier subsidiary also incorporated and tax resident in the Netherlands; and

(ii) Similar to example D (see above) - two sister companies that are incorporated and tax residents in the Netherlands, both directly held by a joint parent company that is tax resident in Germany.

What did the ECJ rule?

Violation of the freedom of establishment

The ECJ ruled the Dutch legislation to be a violation of the EU freedom of establishment. This is because in a domestic context, a fiscal unity is possible between a Dutch parent and Dutch lower-tier subsidiaries.  The fact that in a purely domestic context a fiscal unity between a Dutch parent and second-tier subsidiary can only be formed if the intermediate company is also joined in the same fiscal unity does not change that conclusion, according to the ECJ. On the basis of comparable reasoning, fiscal unities between two Dutch subsidiary companies in the same group, held by a foreign parent company also constitute a violation of the EU freedom of establishment.

No valid justification

A violation of the freedom of establishment may be justified under certain circumstances. The Dutch government argued that the restriction was justified by the need to avoid double loss deduction. The ECJ did not agree, among others reasons, because the risk of double loss deduction remains also if the fiscal unity was denied. The ECJ added that the risk of double loss deduction should in any case be dealt with through custom-made legislation and, therefore, cannot justify an automatic exclusion of the fiscal unity regime. The court finally ruled that it found no valid justification for this violation of the EU freedom of establishment.


As a result of this judgment, the Netherlands must allow fiscal unities between: (i) companies established in the Netherlands, even if the intermediate entity is established in other EU Member States (see example B, above); and (ii) companies established in the Netherlands, even if the mutual parent company is established in other EU Member States (see example D, above). These foreign companies will, then, not be included in the tax consolidation.

Unfortunately, the judgment otherwise does not necessarily extend to situations where the intermediate or parent company is a tax resident of a non-EU Member State, such as the United States. Nevertheless, larger multinational corporate clients are particularly expected to benefit from this ECJ ruling significantly.

Source: Court of Justice EU, 12 June 2014, consolidated cases C-39/13, C-40/13 and C-41/13 (SCA Group Holding B.V., X and MSA International Holdings B.V.)