NL in conflict with EU law

Published: 02-12-2011

The European Commission’s view the Dutch exit taxation as contrary to EU law

The Netherlands was before the EU Court of Justice on November 24, 2010 because the European Commision believed the Dutch exit taxes for businesses be contrary to EU law. The outcome of this case was already actually predetermined due to an HvJ case from November 29, 2011.

The EC argues that under the Articles 3.60 and 3.61 of the Income Tax Act 2001 (IB Companies) and Articles 15c and 15d Corporate Income Tax Law (corporation tax) the Netherlands are wrong in immediately charging tax on unrealized gains for businesses which have relocated to other member states (and probably also EER countries; editor). An immediate tax on unrealized capital gains is in conflict with the freedom of establishment according to the De Lasteyrie du Saillant case, nr. C-9/02 and the N case nr. C-470/04 (both involving a conservative assessment over substantial interest income). It is not permitted to immediately tax already incurred but not yet realized capital gains at the time of relocation when there is no similar tax imposed in comparable domestic situations. Under case law it follows that the member states should delay the collection of their taxes until the moment that the gains are actually realized.

On November 29, 2011 the EU Court of Justice has confirmed that the exit tax for corporations is not contrary to the freedom of establishment in itself, but the immediate tax liability imposed is impermissible. Therefore the European Commission should be proved right by the HvJ and the Netherlands will have to refrain from immediate collection.

The proceedings before the EU Court of Justice were in relation to a Dutch company (National Grid Indus BV) which in order to escape corporation tax changed first their book year and later their headquarters to the United Kingdom. The company had a claim against their parent company of over GBP 133 million and subsequently received a tax on the currency gains achieved from this. Because the company was considered a resident of the UK after the transfer there was an exit tax charged over the latent and therefore unrealized on the grounds of Article 16 Income Tax Law (now Article 3.61 Income Tax Law 2001) in conjunction with Article 8 (now Article 15d). The tax was payable immediately. The EU Court of Justice believes an exit tax on transfer to another member state is not in conflict with the freedom of establishment in itself. It does not matter that any delayed depreciation or capital gains are excluded, or that in this case the foreign exchange gains in the other member state “disappear” because of the current tax regime. The tax payable immediately on the foreign exchange earnings at the time of transfer I impermissible. The mere transfer of the headquarters to another member state is insufficient for a general presumption of tax evasion and does not justify immediate recovery.

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