Share with your friends

Netherlands: Proposed changes to loss rules in liquidation or cessation

Netherlands: Proposed changes to loss rules

A draft bill would amend the liquidation and cessation loss rules in the Dutch corporate income tax law, and would aim at preventing misuse of the liquidation and cessation loss rules and at expanding the tax base.


Related content

An internet consultation has been opened to allow parties an opportunity to respond to the consultation document (comprising the draft bill and a draft explanatory memorandum).

Liquidation and cessation loss rules, background

Benefits from a “participation” (i.e., an interest of at least 5%) are in principle exempt from tax. In other words, the related dividends and capital gains are not taxed. However, losses are non-deductible. An exception to this basic rule is allowed for liquidation losses. Under certain conditions, liquidation losses can be deducted. A similar mechanism applies to benefits derived from a foreign permanent establishment. In principle, an exemption (for both profits and losses) applies, but cessation losses may be deducted under certain conditions. 


Under the draft bill, a liquidation loss on a participation would only be deductible if two conditions are satisfied:

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

Additional conditions for deducting the liquidation loss would also apply. For example, the loss must be attributable to the period when the two conditions (listed above) were met. Also, the draft bill discourages lengthy deferrals of the moment when the liquidation loss can be recognized for tax purposes (a temporal limitation).

There would be a qualifying interest if the parent company is a shareholder of more than one‑fourth of the nominal paid-in capital and/or the taxpayer convincingly demonstrates that as a parent company, it can determine the activities of the subsidiary due to the influence it exercises on decision-making. 

The two conditions have been proposed in order to limit the liquidation loss rules to situations covered by the EU/EEA freedom of establishment. 

The “temporal limitation” has been proposed because (as the bill’s sponsors assert) the rules are being misused by deferring the deduction to any desired moment as currently possible by deferring the completion of the settlement of the assets of the subsidiary. It has therefore been proposed to allow the liquidation loss to be taken into account if the settlement of the assets of the liquidated entity is ultimately settled by the third calendar year following the calendar year when the subsidiary’s business ceased operations or the calendar year when a decision was made. An exception would apply if the taxpayer convincingly demonstrates that the decision to complete the settlement at a later date was business-motivated. 

  • The draft bill contains an efficiency threshold of €1 million—that is, the limitation to participations established in the Netherlands or in the EU/EEA in which the taxpayer holds a qualifying interest would only apply insofar as the liquidation loss exceeds €1 million. A liquidation loss incurred on a non-qualifying interest thus would be deductible up to a maximum of €1 million per participation. 
  • The draft bill also contains a measure that aims at combating misuse of the liquidation loss rules through the use of intermediate holding companies (for example, when the liquidation loss is attributable to a participation in a sub-subsidiary that has since been liquidated in which the taxpayer did not hold a qualifying interest or that was established in a third country). 

Similar amendments have been proposed for the corporate income tax cessation loss rules. Under the draft bill, it would only be possible to deduct cessation losses incurred on: 

  • Permanent establishments in the EU/EEA
  • Immovable property in certain treaty countries that is held as an investment
  • A co-entitlement to the assets of a business—for example, interests as a limited partner in a closed limited partnership (besloten commanditaire vennootschap), or interests as a limited partner in a limited partnership—in certain treaty countries that is held as an investment

The investments in third countries (in the second and third items immediately above) are proposed to avoid a potential conflict with the free movement of capital. An efficiency threshold of €1 million also has been proposed.

Proposed effective date, draft transitional rules

The bill is intended to be effective 1 January 2021, provided that the temporal limitation applies for the first time to the liquidation losses of companies whose business ceased operations or virtually ceased operations on or after 1 January 2021 or a decision for liquidation was made on or after that date (and to cessation losses if the activities in the other state ceased on or after 1 January 2021 or the decision to cease business was made on or after that date).

It has also been proposed to allow the liquidation loss incurred on participations whose business ceased operations or virtually ceased operations before 1 January 2021, to be taken into account through to 31 December 2023, or even later if it is proven that the decision to take the liquidation loss into account at the later date was business-motivated. Similar transitional rules have been proposed for deferred cessation losses.


Interested parties have until 16 May 2019 to respond to the consultation document and to answer a number of more specific questions about the various options chosen. One question concerns how the asymmetry of the Dutch participation exemption would be assessed in light of the debate about harmful tax competition. 

KPMG observation

At present, it is unknown how much support there is for the draft bill. In response to a recent request, the government had indicated that it was not intending to limit the liquidation loss rules. However, this does not necessarily mean that the government would not support the bill. If the final bill is eventually published in the official gazette (Staatsblad), it could have major implications for Dutch businesses with foreign investments. Especially relevant is that interests of 25% or less and interests in third countries would be excluded from the liquidation loss rules and the cessation loss rules as of 2021. At the group level, this measure could trigger more economic double taxation, because more profit would be taxed than is realized by the group as a whole. 

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

The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us


Want to do business with KPMG?


loading image Request for proposal

Stay up to date with what matters to you

Gain access to personalized content based on your interests by signing up today

Sign up today