CJEU judgment on compatibility of Dutch group taxation regime with EU fundamental freedoms

Written by Pieter Deré 26 February 2018

On 22 February 2018, the Court of Justice of the European Union (“CJEU”) issued its judgment in Joined Cases C‑398/16 and C‑399/16 X BV and X NV v Staatssecretaris van Financiën. These cases, which were referred to the CJEU by the Dutch Supreme Court in July 2016, relate to the consequences of the ‘per element’ approach, as established by the CJEU in C‑386/14 Groupe Steria, for the Dutch group taxation regime particularly concerning interest deductibility and currency losses. Interesting to note is that the CJEU followed the conclusion of the Advocate General (“AG”) of 25 October 2017.

In Case C‑398/16 on interest deductibility the taxpayer argued that, as the right to take part in a Dutch group taxation regime is reserved for Dutch resident companies, its freedom of establishment – articles 49 -54 TFEU – had been restricted due to the non-deductibility of interest since investing in a non-resident subsidiary was less attractive than investing in the Netherlands. In its judgement the CJEU held that there was a difference in treatment of two objectively comparable situations in light of the purpose of the Dutch group taxation regime. As this amounted to a unjustified restriction on the freedom of establishment the Dutch group taxation regime, in combination with the rule on interest deductibility, is therefore in breach with EU law. In Case C-399/16  on currency losses the taxpayer also argued that its freedom of establishment had been restricted. However, the CJEU held that two situations were in fact not comparable and that it cannot be inferred from the TFEU that Member States would be required to exercise their taxing powers asymmetrically so as to permit the deduction of losses from operations whose results, if they were positive, would not in any event be taxed.

This judgment has a significant impact on the Dutch group taxation regime whereby, immediately after the publication of the CJEU judgment, the Dutch government announced that new legislation will be proposed in the second half of 2018 in order to implement emergency measures, on the basis of which certain provisions within the Dutch CITA and the Dutch Dividend Withholding Tax Act would have to be applied within a Dutch tax group as if such group was not present, with retroactive effect starting from 25 October 2017 at 11:00. The emergency measures will in the future be followed by a new group taxation regime that is future-proof from both a technical and legal perspective.

We refer to a PwC EUDTG newsletter in this respect, which you can read here.

For more insights and to understand the implications for your organisation, please contact Pieter Deré.