Why would you form a fiscal unity? Companies that are part of a fiscal unity are treated collectively as a single taxpayer. This has both advantages and disadvantages.
Administrative benefit
First and foremost, forming a fiscal unity brings an administrative advantage. Only one corporation tax return needs to be filed. This is a joint return for all companies belonging to the fiscal unity, which is filed by the parent company.
Horizontal loss set-off
Even more important is the possibility of offsetting profits and losses between different companies. This ‘horizontal’ loss relief is particularly useful where, within the same tax group, some companies generate a profit whilst others incur a loss.
Intercompany transactions
Furthermore, intercompany transactions are no longer visible. This means that no adjustments can be made on the grounds of unprofessional conduct.
A final advantage is that the fiscal unity makes it easier to restructure or transfer assets. These transactions are not subject to corporation tax, which means that assets and liabilities can be shifted around freely.
Please note: these actions may, however, have consequences if the fiscal unity is dissolved.
Joint and several liability
As well as offering many advantages, the fiscal unity also has a number of disadvantages. For example, every company forming part of the fiscal unity is jointly and severally liable for the parent company’s corporation tax liabilities.
Investment allowance
As all companies within a fiscal unit together constitute a single taxpayer, the small-scale investment allowance can only be claimed once. As the total amount of investment increases, the allowance decreases (or even becomes nil).
Tiered pricing
The same applies to the tax bracket. Every taxpayer is eligible for the tax bracket. The first €200,000 of taxable profit is taxed at a reduced rate of 20%, with the remaining profit taxed at a rate of 25%. As the fiscal unit constitutes a single taxpayer, the first €200,000 is taxed at the lower rate only once.
This tax threshold will be raised to €250,000 in 2018, after which it will be increased in stages to €350,000 in 2021.
Liquidation Loss Scheme
If a shareholding is liquidated, the liquidation loss scheme may be applied. However, this does not apply in the case of a fiscal unity. There is little point in withdrawing the company to be liquidated from the fiscal unity beforehand, as the value of the shareholding would then have to be recalculated and would consequently be lower.
Tax unit: how and when?
In order to form a fiscal unit, a number of requirements must be met. For example, the parent company must hold at least 95% of the shares in the subsidiary. Furthermore, the parent company must also be entitled to at least 95% of the voting rights, profit rights and assets of the subsidiary. In addition, the parent and subsidiary companies must use the same financial years and profit-sharing arrangements.
Abroad
The tax authorities also require that both the parent company and the subsidiary be established in the Netherlands. However, there are two exceptions to this. A Dutch parent company may, if the non-Dutch subsidiary is established in Europe, form a fiscal unity with a Dutch sub-subsidiary. Another possibility is for Dutch sister companies to form a fiscal unity together. The shares in the companies must then be held by the same parent company established in the EU.
Request
In order to form a fiscal unity, the parent company and the subsidiary must jointly submit an application to the tax authorities. The application may specify the desired date for the formation of the fiscal unity, but this must not be earlier than three months prior to the date of the application.
Expert guidance
Creating and maintaining an optimal corporate structure requires expert guidance. This is because it is not only necessary to consider your current requirements, but also your future plans. For example, certain transactions within a fiscal unit may not be significant at present, but could have major consequences should that fiscal unit be dissolved.
Infographic on forming a corporate tax group
We have also summarised the advantages and disadvantages of a tax group for corporation tax purposes in an infographic. This infographic allows you to see at a glance what it’s all about.
