On July 2, 2019, the Dutch government published a legislative proposal on the implementation of the EU Anti-Tax Avoidance Directive 2 ("ATAD 2") in Dutch tax law. The main objective of ATAD 2 is to eliminate hybrid mismatches by neutralizing their tax effects
The implementation of ATAD 2 covers the following scenarios that may result in either a double deduction or deduction/non-inclusion outcome:
Anti-hybrid mismatch rules
Insofar one of the scenarios as set out above apply, the following rules should become applicable depending on the scenario:
Situation concerning a ‘double deduction’
The deduction of a payment is allowed by the Dutch payor if the payment is not deductible in another country that is regarded as the recipient country.
If, however, the primary rule is not applied and the entity in the Netherlands is regarded as the payor, the deduction is not allowed at the level of the Dutch payor.
Situation concerning a ‘deduction/non-inclusion’
The deduction of the payment by the Dutch payor is not allowed if the payment is not included in the tax base at the level of the recipient.
If, however, the primary rule is not applied and the entity in the Netherlands is regarded as the recipient, the payment is included in the Dutch tax base insofar the country of the payor allows for a deduction.
Reverse hybrid mismatch rule
The reverse hybrid mismatch rule that will only enter into force as per January 1, 2022 eliminates the reverse hybrid mismatch altogether as opposed to the primary and secondary rule that merely neutralize the effects of the reverse hybrid mismatch. Based on this rule, the Dutch hybrid entity, such as for example the CV in the CV/BV structure, becomes a Dutch resident non-transparent taxpayer from a Dutch tax point of view if that Dutch entity is regarded as non-transparent (≥50%) for tax purposes in a jurisdiction where the participants in that entity are tax resident.
A new administration obligation is introduced, that shall apply to all Dutch corporate taxpayers. Dutch corporate taxpayers will need to document to what extent hybrid mismatch rules apply to them. If this obligation is not met, the Dutch tax inspector may suspect that the hybrid mismatch rules are applicable and request the taxpayer to prove that the rules are not applicable. In fact, this means that there is a shift in the burden of proof towards the taxpayer.
Please note that the legislative proposal is still subject to possible amendments. However, it is expected that the proposal will be adopted and that the rules will apply as from January 1, 2020 (and reverse hybrids as per January 1, 2022).
If you have questions on how ATAD 2 will affect your business, please do not hesitate to contact us.
Richard Smeding – firstname.lastname@example.org
Gerwin de Wilde – email@example.com
October 16, 2019