On October 25 2017 the Advocate General (“AG”) at the Court of Justice of the European Union (CJEU) published his opinion on the preliminary ruling request of the Dutch Supreme Court in two corporate income tax cases concerning the applicability of the so-called ‘per-element’ approach in the Dutch tax consolidation regime (“fiscal unity”). The common key issue is whether taxpayers are eligible for benefits from separate elements of the fiscal unity regime as if a fiscal unity with foreign subsidiaries can be entered into, despite the fact it’s not possible to enter into a fiscal unity with non-EU established subsidiaries. This occurs in situations concerning the Dutch interest deduction limitation rule to prevent base erosion and the non-deductibility of currency losses on a participation in a non-Dutch/EU subsidiary.
In general the AG is of the opinion that the ‘per-element approach’ adopted by the CJEU in the Groupe Steria judgment is also applicable in the Dutch tax consolidation regime (“fiscal unity”). The AG considers that the application of the interest deduction limitation is contrary to the EU freedom of establishment.
If this approach is enshrined in the Court’s decision, this could have a major impact on the Dutch tax consolidation regime. According to the Dutch Government, a negative decision from the CJEU is expected to cause artificial erosion of the tax base of Dutch corporate income tax. Hence, the Dutch Government announced emergency remedial measures in case the CJEU follows the negative conclusion of the AG in the case on interest deduction limitations to prevent base erosion. These emergency remedial measures will have retroactive effect as from 25 October 2017, 11:00 am. If the so-called per-element approach should be applied, some advantages of the fiscal unity (for example the non-application of the anti-abuse rule in art. 10a of the Dutch Corporate Income Tax Act) would no longer be available in domestic situations by treating a fiscal unity in domestic situations in the same way as in a comparable EU situation (in which the advantages are also not available). As a consequence, several laws in the CIT and the DWT will be applied as if ‘no fiscal unity exists’. The infringement with the right of establishment caused by the Dutch fiscal unity regime would in such manner be eliminated for the future. In addition, the Dutch government announced that the Dutch fiscal unity regime will, within a foreseeable period, be replaced by a company tax group regime that is future-proof.