Fiscal Unity in the corporate tax

What is Fiscal Unity?

With fiscal Unity for the corporate tax a parent company and one or more units of a group is seen as one entity obligated to pay taxes for the corporate tax. The profit of the units is allocated to the parent company. For the tax law the activities and the capital of the unit will be part of the activities and the capital of the parent company, but for the civil law the unit remains a separate entity.

When can a Fiscal Unity be created?

The following conditions must be met when creating a Fiscal Unity:

-The parent company owns at least 95% of the unit’s shares;

-Parent and Unit use the same financial years;

-Parent and Unit use the same profit determinations;

-Parent and Unit are factually based in The Netherlands;

-Parent and Unit are both founded in The Netherlands.

Benefits Fiscal Unity

One of the benefits of Fiscal Unity is that horizontal loss compensation is possible. The losses that a company within the group has suffered in a certain year can be settled with the profits of a different group in that same year. Profit- and capital shifts within the Fiscal Unity will not be taxed in principle. This means you do not have to concern yourself about the correct price in internal group transactions because silent reorganisation is possible. Within the Fiscal Unity regroupings can be created without consequences to the corporate taxation. Furthermore, administrative obligations are lessened because only one declaration of corporate tax has to be filed.

Disadvantages Fiscal Unity

A disadvantage of the Fiscal Unity is that the sacrificed amount of the joint participation is lost. This is because with a possible future liquidation only a relative smaller liquidation loss can be deducted. For loss compensation that carry over the end of a year certain limitations apply, especially concerning the settlement of loss over the time of conclusion (start of the Fiscal Unity) and deconsolidation (end of the Fiscal Unity). An investment deduction can be applied only once, therefore all investments of the Fiscal Unity must be included together. Because there is a maximum of all the investments that can be considered for the deduction, this can be a disadvantage if they are not calculated per entity. In addition, all partnerships that are part of the Fiscal Unity are, in principle, liable for the owed corporation tax of the Fiscal Unity. The partnerships are therefore severally liable.

How do I create a Fiscal Unity?

To create a Fiscal Unity the concerned partnerships must file a request for Fiscal Unity with the Tax Office under which the partner company falls.

For more information or any other questions please do not hesitate to contact us at info [at] lupacompany.com.