Tax group for corporate income tax

Corporate Income Tax (CIT) Group

Establishment and Conditions

A tax group for corporate income tax can only be established upon request. Although the companies remain separate legal entities, they are treated as a single taxpayer for tax purposes. A request to establish a tax group must be submitted in writing to the Dutch Tax and Customs Administration. The request must be submitted within three months after the desired effective date, as the maximum retroactive effect allowed is three months.

Conditions are strict, including: The parent company must hold at least 95% of both the legal and beneficial ownership, financial years of the participating BVs must align, and all participating BVs must apply the same profit calculation rules. Additionally, both the parent and subsidiary companies must have their actual place of business in the Netherlands, and the parent company must not hold the shares in the subsidiary as inventory.
 

Termination and Consequences

A tax group automatically ends when the conditions are no longer satisfied. Termination cannot have retroactive effect; it takes effect from the date the request is received. If a subsidiary is liquidated and wound up, the tax group concerning this subsidiary automatically ends, yet this event is not formally considered a 'deconsolidation.'
 

Advantages

It allows losses and profits within the group to be offset. Transactions between the BVs within a tax group are disregarded for tax purposes, permitting internal transfers without immediate tax implications, provided the group remains intact for at least six years (or sometimes three). A tax group requires only one corporate income tax return.
 

Disadvantages

The reduced 19% corporate income tax rate on the first €200,000 of taxable profit can only be utilised once. Additionally, every BV within the tax group is jointly and severally liable for the total tax liability of the group. Termination may trigger retrospective settlement of capital gains on assets transferred internally in the preceding six years. Furthermore, investment deductions thresholds are reached faster, and the divestment addition applies when assets exceeding €2,900 are sold. Also, if one BV within the tax group becomes bankrupt, it can affect the entire group’s taxable profits.
 

VAT Tax Group

Formation and Conditions

No specific request or decision from the Dutch Tax and Customs Administration is required. VAT groups form automatically if participants qualify as VAT entrepreneurs, reside or be established in the Netherlands, and are interconnected financially, organisationally, and economically. Such connection broadly means more than 50% of each company's shares must be under common control.
 

Advantages

Participating companies are not required to pay VAT on supplies of goods and services between themselves. Only one consolidated VAT return needs to be submitted, and the VAT group is assigned a single VAT identification number. However, individual companies must continue to use their own VAT identification numbers on invoices.
 

Disadvantages

All participating companies in the VAT group become jointly and severally liable for the VAT obligations, but this joint and several liability only arises once the Dutch Tax and Customs Administration has issued an official VAT group decision. Since the group automatically exists, it cannot be dissolved upon request, ending only when one or more of the conditions are no longer fulfilled. Failure to promptly inform of changed conditions results in continuation of joint and several liability.
 

More information

For more information about this subject, you can read the advisory handbook.
 

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