On April 20, 2018, the Dutch State Secretary of Finance answered Parliamentary questions about the announced remedial measures with regard to the Dutch corporate income tax (“CIT”) fiscal unity regime. These remedial measures can have an adverse impact on businesses, because interest will become visible within the fiscal unity, and therefore this could limit the deductibility of the interest. Moreover, an uncertain factor is that the exact measures are not yet known, while these measures have already been implemented.
In order to relief the impact on businesses, a transitional measure has been proposed with regard to non-deductible interest (as defined in Section 10a Corporate Income Tax Act). This way, the taxpayer will be able to prevent certain adverse consequences of the remedial measures, within a temporary transitional period. However, this will only apply to limited interest amounts (max EUR 100,000).
The aforementioned transitional measure means that up until December 31, 2018, the interest deduction will, under circumstances, not be applicable when “both the existing debt is legally or de facto – directly or indirectly – due to a related entity or individual and the tainted transaction (as defined in Section 10a, sub 1, Corporate Income Tax Act) to which the debt related already existed on 25 October 2017 at 11.00 hours. In addition, the amount of the interest on the total debt may not exceed an amount of EUR 100,000 during a twelve month period“.
In regard to the amount EUR 100,000 please note that it is not meant as a threshold. The transitional measure is solely applicable when the total interest on the debts in one year does not exceed EUR 100,000. If this cap is exceeded, the full amount of interest could be subject to the interest deductibility limitation rules.
If the transitional measure is not applicable, it is important to determine to what extent the interest is non-deductible under the interest deductibility limitation rules. Unfortunately, this is not yet clear in all cases, but there are other possible solutions like a merger or other means of funding.
The expectation is that the remedial measures will in time be followed up by a new group relief arrangement. Nonetheless, the exact form and moment of implementation is yet to be discussed.
We are happy to discuss the consequences of the above with you.