How a clever restructuring saves a Dutch e-commerce group EURO 27,200 annually

The client’s problem

Our - originally - German customer trades in the Netherlands through a Dutch holding structure. The Dutch holding company functions as the head office of two Dutch subsidiary companies that are active in the field of e-commerce. The Dutch holding company and its two Dutch subsidiary companies form a so-called fiscal unity (tax consolidation).

One of the main advantages of the Dutch fiscal unity regime is that companies within the fiscal unity can basically offset profits and losses against each other, potentially reducing the overall tax liability of the group. Several years ago we assisted a client with the fiscal unity application.

However, Dutch corporate income tax now provides for two tax rates. One lower rate of 19% for profits not exceeding Euro 200,000 and 25.8% for the excess. In the case at hand the consolidated taxable profit was estimated at Euro 800,000, which means that the fiscal unity can only benefit once from the lower rate of 19% for Euro 200,000 of its profits, while Euro 600,000 would be taxed at the high corporate income tax rate of 25.8%.

Our solution

We informed the client that if the three companies would not make part of the fiscal unity anymore, the three companies would have to file each a Dutch corporate income tax return as a separate taxpayer. That would also mean that each of the three companies could make use of the lower tariff of 19%, instead of the fiscal unity only once.

There are several ways to break a fiscal unity. But before doing so, it has to be analysed first if an to what extent such a breakup could trigger any anti-abuse provisions laid down in Dutch tax law. In the case at hand we concluded that a voluntary break up could not do harm.

On behalf of the client we requested the Dutch tax authorities to voluntary break the fiscal unity with effect of 1 January, which was honoured.

Current situation

All companies of the former fiscal unity are expected to make a taxable profit of at least Euro 200,000 each. So all Dutch companies could fully make use of the lower Dutch tax rate of 19%, saving an additional 6.8% on the first bracket of Euro 200,000. That means that Euro 13,600 can be saved per company.

As the client can now make use of the low rate three times instead of once, the client saves - with these rates - EURO 27,200 per annum.

Note: due to the privacy of our clients, this case study provided by TGS lime tree does not include any names, numbers and other sensitive information of our clients, partners and other parties involved.