Decree with clarifications on Anti-hybrid Mismatch rules


On 1 January 2020, the Dutch act implementing the Second EU Anti Tax Avoidance Directive (ATAD2) entered into force. This legislation aims to combat tax avoidance making use of so-called ‘hybrid mismatches’. In practice, this legislation has led to a number of questions. 

On 11 October 2021, the Ministry of Finance has published a Decree which gives answers to some of these questions. The Decree entered into force on 12 October 2021. 

Origin of the mismatch; arm’s length principle

For the application of hybrid mismatch rules to mismatches from deductions without inclusion in the tax base, the so-called ‘origin requirement’ applies. This requirement means that this part of the hybrid mismatch rules only apply if the mismatch has its origin in a hybrid element. If a mismatch originates from factors other than a hybrid element, then these measures do not apply. 

The decree refers, by way of example, to the situation where a remuneration or payment to an entity resident in another state is not taxed because that entity is not subject to corporate income tax, because it is exempt from taxation on profits in that other state or because that other state does not have corporate income tax. 

Another example of a mismatch that has not its origin in a hybrid element is a mismatch arising from a different application of the arm's-length principle, resulting in differences between the transfer prices applied by different jurisdictions (except if there is a hybrid element as well, or in certain cases involving permanent establishment mismatches). 

However, please note on 21 September 2021, the government published a separate bill with measures to prevent mismatches when applying the arm’s length principle. The purpose of that bill is to eliminate mismatches in taxation that arise due to the application of the at arm's length principle, in the case of informal capital structures and in the case of deemed profit distributions. If you would like to read more about these measures, please follow this link to our Tax News article: 2022 Tax plan: Preventing mismatches when applying arm's length principle.

General background

Multinational groups and organisations organise themselves and their activities making use of all sorts of legal entities and financial instruments. Different jurisdictions often qualify these legal entities and financial instruments (such as loans) differently from each other for tax purposes. Such a difference in qualification (a ‘hybrid mismatch’) can be abused to avoid taxation in the jurisdictions concerned, e.g. by organising a double (or even triple) deduction for the same cost within the group or by making sure that income is not recognised for tax purposes in any of the jurisdiction. 

The Second Anti Tax Avoidance Directive (ATAD2) aims to fight these types abuse of hybrid mismatches, e.g by refusal of deduction of costs in a jurisdiction if the corresponding income is not taxable at the level of the receiving entity, or by treating a legal entity in the same manner in the jurisdictions concerned (either in all jurisdictions as tax transparent or as opaque). 

ATAD2 has been implemented into the Dutch legislation effectively as from 1 January 2020. On 11 October 2021, a decree was published by the Dutch State Secretary of Finance providing further guidance on some elements of the legislation. 

Foreign cross-border tax consolidation regimes

Mismatches between different countries can also arise from foreign (i.e. non-Dutch) tax consolidation regimes, by which, for instance, the income of a subsidiary and/or its assets and liabilities are directly taken into account at the level of its parent company. One could doubt whether the anti-hybrid mismatch rules also apply to these situations, because this type of mismatch does not necessarily arise from a difference in qualification (see e.g. the above-mentioned ‘origin requirement’), but merely from the application of a foreign tax regime. The Decree clarifies that, in the view of the State Secretary of Finance, mismatches arising in situations in which foreign tax consolidation regimes apply, are also within the scope of the anti-hybrid mismatch rules. 

In the Decree this is illustrated by two examples. 

Example: US ‘partnership’ rules and ‘disregarded entities’

One example discusses a Dutch BV that is held by two US Incs. The Dutch BV has cost-plus income from one of its parent US Incs and incurs operating expenses in the Netherlands. The difference is taxable profit in the Netherlands. For US tax purposes the BV is considered a ‘partnership’ and therefore tax transparent (at least, according to the example). This would mean that the operating expenses of the Dutch BV are also deducted from the taxable result calculated in the US for the US Incs. Prima facie this is a situation where the costs are deducted twice. The anti-hybrid mismatch rules prescribe in such a case that the deduction of the operating expense must be denied.

However, if the BV result is also fully included in the US Inc’s tax bases for US corporation tax bases, it may be that the BV income is included in a taxable base twice (once in the Netherlands and once in the US. In that case the so-called dual inclusion exception of the anti-hybrid mismatch rules may be applicable, assuming the income does not qualify for an exemption, a lower rate, or a tax credit other than for withholding taxes, and the deduction of the operating expenses becomes again permissible.

From this latter part of the example we derive that the Ministry of Finance wishes to treat these kinds of situations taking into account the subtleties of the foreign regime at hand. In this example a distinction is to be made between the US treatment of ‘partnerships’ and ‘disregarded entities’. 

Example: US REIT (Real Estate Investment Trust)

The other example also regards a US (tax) regime, namely Real Estate Investment Trusts (REITs). According to this system a Dutch BV holding Dutch real estate, which is held by a US REIT may be treated in the US as a ‘Qualified REIT Subsidiary’. This means that the BV’s assets and liabilities and income is consolidated at the level of the US REITs. In the example the US REIT has provided a loan to the BV. The interest on this loan is in principle deductible at the level of the BV in the Netherlands, but due to the consolidation not ‘visible’ and therefore not taxable in the US at the level of the REIT. In such a case the deduction of the interest at the level of the BV is denied. However, depending on the exact REIT regime applicable (this may be different depending on the US state in which the REIT is established), the income the BV derives from the real estate is also included in the US tax base, in which case the ‘dual inclusion exception’ may apply. 

Deductible profit distributions

The Decree addresses also the aspect of deductible profit distributions. In some jurisdictions profit distributions (such as dividends) may for some types of legal entities be deductible from the taxable profit. As an example this may be the case for US REITs (please see above). 

The Decree clarifies that income payments from a Dutch company to a foreign company, that are in principle deductible in the Netherlands at the level of that Dutch company, are still regarded as being included in the foreign tax base of the foreign company, even if the profit distributions made by that foreign company to its shareholders or participants are deductible in the other country.

Affiliation; collaborating groups

Finally, the Decree provides a summary of the criterion whether a company is affiliated with the taxpayer for the application of the anti-hybrid mismatch rules, however just in general terms. The Decree repeats earlier statements that for this criterion the definition of collaboration groups (‘samenwerkende groep’) will be relevant, and that the question whether or not a group of companies collaborates, is to be answered on the basis of the actual facts and circumstances. In the view of the State Secretary it is not relevant  whether the companies have collaborated with the specific intent to avoid the anti-hybrid measures.


The decree provides a summary of certain technical details of the Dutch ATAD2 legislation, parts of which were already known based on legislative history of the Dutch ATAD2 legislation, and parts of which were not previously discussed during the parliamentary process. Although the Decree provides the view of the State Secretary of Finance on various topics, these views are not necessarily binding for taxpayers to the extent they are not supported by the law itself and the parliamentary proceedings. Please contact one of the PwC experts listed below for advice on how this may impact your organisation. 

Contact us

Maarten van Brummen

Maarten van Brummen

Senior Manager, PwC Netherlands

Tel: +31 (0)61 061 65 09

Michel van Dun

Michel van Dun

Senior Manager, PwC Netherlands

Tel: +31 (0)61 042 11 99

Tijmen Cabollet

Senior Manager, PwC Netherlands

Tel: +31 (0)62 229 20 53

Ruben Bolwerk

Ruben Bolwerk

Manager, PwC Netherlands

Tel: +31 (0)63 046 14 13

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