19 September 2019 - Setting up a transport company involves a lot of work. It is important to set up your company as optimally as possible from a fiscal point of view. In this four-part series, we will elaborate on the options at your disposal to this end. In part 1 of this four-part series, the tax entity for corporate income tax will be discussed in detail.
Requirements for a Dutch company
If you incorporate a Dutch company, it may, under certain conditions, together with one or more Dutch subsidiaries, be regarded as a tax entity for corporate income tax purposes. In principle, in the case of a tax entity, all profits and losses of the subsidiaries included in the tax entity may be allocated and taxed at the parent company.
The requirements for forming a tax entity for corporate income tax purposes are as follows:
- The parent company is actually established in the Netherlands and has the legal form of a nv (public limited company) or bv (private company with limited liability), a cooperative, a foundation, an association that acts as a housing corporation or a foreign legal form comparable to that.
- The subsidiary is actually established in the Netherlands and its legal form is a nv or bv, or a foreign legal form comparable to that.
- The parent company holds at least 95% of the legal and beneficial ownership of the nominal paid-up share capital of the subsidiary. This shareholding represents at least 95% of the statutory voting rights, entitles the holder to at least 95% of the profits and represents at least 95% of the assets of this subsidiary.
- The parent company and subsidiary or subsidiaries apply the same financial years. Certain exceptions apply to a subsidiary which is set up in the course of the year or which has an extended financial year as its first financial year.
- The parent company and subsidiary or subsidiaries apply the same determination of profits.
Under certain conditions, it is also possible to form a tax entity for corporate income tax purposes if a foreign shareholder or a foreign intermediate company is included in the group structure.
The pros and cons of a tax entity
The advantage of a tax entity for corporate income tax purposes is that the profits and losses of both the parent company and the subsidiary or subsidiaries can be set off against each other. This also means that only one corporate income tax return has to be prepared. In addition, a tax entity is a frequently used means of reorganising a group. This is because it is possible to transfer assets within a tax entity without having to settle them immediately.
On the other hand, the disadvantage of the tax entity is that it is possible to use the first bracket of 19% (in 2019) on profits up to €200,000 only once. With a tax entity, the profits of all the companies included in the tax entity are added together, so that your profit on balance may be higher than €200,000. Exceeding €200,000, the tax rate is 25% (in 2019). Moreover, all the companies in a tax entity are jointly and severally liable for the corporate income tax payable by the parent company. The investment deduction is calculated on the basis of the total investments of the tax entity as a whole, which results in a lower amount of investment deduction than would be the case if all companies were subject to corporate income tax on their own.
Emergency repair of the tax entity corporate income tax
Following a judgement of the Court of Justice of 22 February 2018 and the subsequent judgement of the Supreme Court of 19 October 2018, the Ministry of Finance was forced to adapt the tax entity regime. To this end, a number of emergency measures have been devised. These emergency measures result in a less extensive application of a tax entity in domestic situations, because certain articles of the Corporation Tax Act 1969 and the Dividend Withholding Tax Act 1965 have to be applied. This applies, among other things, to the interest deduction limitation to prevent base erosion of profits and the trade in loss-making bodies.
We have drawn up a check list in order to assess whether the emergency measures affect your situation in any way. The specialists at Mazars will be happy to help you determine your tax position and can assess whether a tax entity is advantageous in your situation.
Want to know more?
Would you like to know more about the tax structures that you may encounter in the various stages of entrepreneurship? Please read our four-part series on the optimum tax structure. Would you like to know what options are available to you for incorporating and setting up your transport company in the best possible way, both from a tax and financial perspective? If so, please contact Pieter Tra by e-mail or by phone: +31 (0)88 277 18 95 or Joost Grieving by e-mail or by phone: +31 (0)88 277 18 71. They will be happy to be of assistance!