Consultation Dutch implementation ATAD 2

30/10/18

On 29 October 2018, an internet consultation was opened for the Dutch implementation of ATAD 2, aimed at combating tax planning that makes use of so-called 'hybrid mismatches'. For example, hybrid mismatches include the situation where one country treats an entity or receivable differently when compared to another country. The consultation concerns a complete (draft) bill and an extensive parliamentary explanation including examples of the type of mismatches that need to be combated.

What problem does ATAD 2 solve?

Entities, (financial) instruments, permanent establishments or the place of establishment of an entity are sometimes qualified differently by different (EU) countries. This can lead to a situation where a payment, for example, is deducted in two countries, or is deducted once but is not taxed in the other country. ATAD 2 and this Dutch draft bill aim to prevent this. This proposal applies both to situations between EU Member States and to situations between EU Member States and third countries.

What does this mean for you?

For example, if there is an entity in your group that is assessed differently by two countries, you will have to assess what the consequences of this are under the proposed legislation. A similar advice applies in case your company uses financial instruments that are treated differently for tax purposes in different countries. Your PwC advisor will be happy to help you with this.

The rules of ATAD 2 in more detail

As indicated above, the (draft) bill contains measures against undesirable tax effects of hybrid mismatches in the qualification of entities, (financial) instruments, permanent establishments or place of residency. The measures are aimed at situations of 'deduction without corresponding taxation' and 'double deduction'. Generally, the decisive factor is whether a payment or compensation is deductible 'by its nature'.

Affiliated and unrelated entities

The 'anti-mismatch rules' affect hybrid mismatches in case of affiliated entities, i.e. with interests of at least 25%. Structured transactions between unrelated parties are also covered by the proposed rules, i.e. transactions in which the financial benefit of a hybrid mismatch is part of the scheme. The new rules apply both to situations between EU member states and to situations between EU member states and third states. The Netherlands will not make an exception for financial traders and certain financial instruments.

Neutralising measures and tax liability measures

The draft bill falls into two types of rules: first, the 'neutralising measures' that adjust the tax consequences of the difference in qualification and, second, the 'tax liability measure'. The latter measure relates to certain Dutch entities that the Netherlands 'does not take into account’ for corporate income tax purposes while another state does, for instance a limited partnership (CV). The 'tax liability measure' eliminates the difference in qualification and will result in the Netherlands taking into account the Dutch entity as a resident taxpayer for corporate income tax.

Primary and secondary rule

In general, the neutralisation measures have a primary rule ('no deduction of payment for the payer') and a secondary rule ('taxing payment at the payee'). Many measures are based on a 'in so far as approach'; if part of the payment or remuneration is taxed, the deduction is allowed for that part.

Next steps?

The neutralising measures of ATAD 2 must be implemented and enter in force on 1 January 2020, as required by the EU directive. The implementation date for the tax liability measure is set at 1 January 2022.

The internet consultation runs from 29 October to 10 December 2018. The Ministry of Finance can take the comments from the internet consultation into account when drawing up the final bill. It is expected that the final bill will be submitted to the House of Representatives in the first half of 2019, so that the measures can enter into force on 1 January 2020.