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Netherlands: Limitation of liquidation and cessation loss rules, update (corporate income tax)

Netherlands: Liquidation and cessation loss rules

The Dutch government intends to amend the liquidation and cessation loss rules for corporate income tax purposes as of 2021, in order to prevent improper use and to broaden the tax base. In elaborating this proposal, the government intends to use a draft private members’ bill (presented by some of the Opposition parties and opened for public consultation in April/May 2019) as a starting point as much as possible.


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A final version of the draft bill was submitted to the Deputy Minister of Finance in early October 2019, and this version of the bill is now available. The final draft bill includes a number of changes ensuing from the responses to the consultation and a round table discussion in late May 2019. In addition, the reasoning behind the choices has been elaborated upon in more detail and a number of clarifications have been made.

Final draft bill

Under the draft bill, a liquidation loss on a participation would still in principle only be deductible if:

  • The participation is established in an EU/EEA state (territorial limitation); and
  • The Dutch taxpayer holds a qualifying interest in the subsidiary (quantitative limitation).

Originally, there would have been a qualifying interest if there were: (1) a holding of more than a quarter of the nominal paid-in capital; and/or (2) an interest with a decisive influence on the decision-making with regard to the subsidiary’s activities. In the final draft bill, only the category mentioned under (2) remains. As shown by illustration, the explanatory memorandum refers to an example with an interest of more than 50% and a situation in which an interest gives the holder more than half of the voting rights. In contrast to the bill that was opened for public consultation, the interest held by entities affiliated to the taxpayer could now also be included when determining whether there is a qualifying interest.

Additional conditions for deducting the liquidation loss still would also apply. For example, the loss must be attributable to the period in which the two conditions of territorial limitation and qualitative limitation were met without interruption. In addition, the draft bill discourages lengthy deferrals of the moment when the liquidation loss can be recognized for tax purposes (temporal limitation). In that respect, it has been proposed to take a liquidation loss into account only if the settlement of the assets of the liquidated entity is ultimately completed in—put briefly—the third calendar year following the calendar year in which the subsidiary’s business ceased operations or the calendar year in which a decision thereto was taken.

For the situation that there are latent losses on the intended effective date of 1 January 2021, transitional rules are still proposed with regard to the temporal limitation. There is also an efficiency threshold which means, for example, that a liquidation loss in respect of a non-qualifying interest of a maximum of €5 million per participation is nevertheless deductible. The bill that was opened for public consultation included an efficiency threshold of €1 million.

Similar changes are proposed for the cessation loss rules for corporate income tax purposes.

Deputy Minister's response

In his response to the submission of the final draft bill, the Deputy Minister indicated that the government agrees with the bill’s sponsors assertion that some elements of the rules in question are too broad and that it is desirable to limit their scope. The Deputy Minister once again commented that the government will use the draft bill as a starting point for further elaboration as much as possible.

KPMG observation

By tightening the qualifying interest (based on the draft bill), it would in many cases only be possible to claim a liquidation loss if there is an interest of more than 50%. The good news and of particular practical significance is the fact that the efficiency threshold has been raised considerably as a result of the consultation responses. Also, although the Deputy Minister indicated that the draft bill will be used as a starting point, it remains to be seen which aspects will and will not be adopted. What is clear is that a limitation of the liquidation and cessation loss rules can currently count on a majority in the Lower House of Parliament and that a change along the lines of the final draft bill could have a major impact on Dutch companies with foreign investments. Especially relevant is that interests of 50% or less and interests in third countries would be excluded from the liquidation and cessation loss rules as of 2021, unless the efficiency threshold of €5 million applies.

Read an October 2019 report prepared by the KPMG member firm in the Netherlands

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