In our article Emergency repair to the corporate tax group We discussed a measure that is to be introduced following a judgment handed down by the Court of Justice.
Emergency repair
That was quite a complicated matter. The up and down of it is that interest which is not visible within the corporate tax group must be included in the profit. Exactly how this works is not clear, as the draft legislation has still not been published. What is clear, however, is that the measure has already come into force, with effect from 25 October 2017 at 11.00 am. It must therefore already be taken into account in the 2017 corporation tax returns.
Also for SMEs
The emergency repair measure applies not only to large companies, but also to SMEs. This led to widespread protests and to Parliamentary questions from Ms Lodders of the VVD. As part of the responses to these questions, State Secretary Snel of Finance is proposing a transitional measure designed to mitigate the impact on SMEs.
The quick-witted among you will have concluded from the articles published that up to €100,000 in (potentially) tainted interest is not a problem. After all, for most SMEs, such an amount of interest will not be an issue. Let alone interest relating to contaminated transactions. But the situation is somewhat more nuanced, given the conditions that Snel has set for the transitional measure.
Conditions
The key condition is that the debt must have existed as at 11.00 am on 25 October 2017. Furthermore, the debt must relate to a (tainted) legal act carried out before 11.00 am on 25 October 2017. Finally, the interest per 12 months must not exceed €100,000. Furthermore, no account may be taken of whether the underlying legal act(s) were based on commercial considerations, nor of whether a compensatory levy would apply. It is therefore not sufficient to simply check whether the interest paid remains below €100,000.
The transitional measure will remain in force until 31 December 2018. This gives (SME) businesses the opportunity to ensure that they are not affected by the emergency fix. To do so, they must eliminate the (contaminated) group debt(s). However, this can only be done once it is clear exactly what the emergency remedy entails. And this will only be finalised once the legislative amendment has been passed.