Foreign subsidiary in a Dutch fiscal unity: when it works

A foreign subsidiary without a Dutch permanent establishment can never be part of a Dutch CIT fiscal unity. If it does have a Dutch permanent establishment, it can join under article 15(8) of the Dutch CIT Act 1969. If an intermediate or top entity established in the EU or EEA sits between two Dutch companies, a Papillon fiscal unity or a sister fiscal unity can offer a way in. Here are the routes.

The establishment requirement: why most foreign subsidiaries fail

Article 15(4)(c) of the Dutch CIT Act 1969 requires both the parent and the subsidiary to be actually established in the Netherlands. A subsidiary established entirely abroad with no Dutch activity does not meet that requirement and cannot join. This was confirmed by the European Court of Justice in X Holding (C-337/08, 25 February 2010): the territoriality principle underlying the fiscal unity is justified, and a member state need not admit a foreign subsidiary without a permanent establishment.

The legal form requirement also applies: the subsidiary must be comparable to a Dutch BV or NV (article 15(4)(e)). A foreign legal form that is not comparable fails on that second ground alone, regardless of where it is established.

The permanent establishment route: article 15(8)

An entity not established in the Netherlands can still join the fiscal unity through its Dutch permanent establishment, article 15(8) of the Dutch CIT Act 1969. If the parent is the foreign party, the shares in the Dutch subsidiary must belong to the assets of that Dutch permanent establishment (article 15(8), first indent). The fiscal unity then covers only the part attributable to the Dutch permanent establishment, not the entire foreign entity.

Example: Holding GmbH in Germany holds at least 95% of the shares in Werk BV through its Dutch permanent establishment. That meets the 95% requirement and the establishment requirement. Besides requiring the shares to belong to the assets of the permanent establishment, paragraph 8 also requires that the profit of that permanent establishment is subject to Dutch corporate income tax and that Holding GmbH's place of effective management is in the EU or EEA. If the structure also meets the other conditions of article 15, Holding GmbH can form a fiscal unity with its Dutch permanent establishment and Werk BV. First check the other conditions with the checklist for Dutch fiscal unity requirements, including the 95% ownership requirement.

If a Dutch company itself has a foreign permanent establishment, the profit of that permanent establishment remains subject to the object exemption within the fiscal unity (article 15e of the Dutch CIT Act), and the cessation loss regime of article 15i applies if that permanent establishment is discontinued.

Papillon fiscal unity: a grandchild through a foreign intermediate holding

A Papillon fiscal unity allows a Dutch parent and a Dutch grandchild company to consolidate while the intermediate company between them is established in another EU or EEA member state and itself stays outside the fiscal unity (article 15(3) in conjunction with article 15(5) of the Dutch CIT Act). The full ownership chain must still meet the 95% requirement (paragraph 5), and the intermediate company must have a legal form comparable to a BV or NV.

Example: Parent BV in the Netherlands holds 100% of the shares in Belgium NV, which in turn holds 100% of Grandchild BV in the Netherlands. Parent BV and Grandchild BV can form a Papillon fiscal unity. Belgium NV stays outside the fiscal unity, but the chain Parent BV-Belgium NV-Grandchild BV must still meet the 95% requirement.

Sister fiscal unity: two Dutch sisters under a foreign top company

In a sister fiscal unity, two Dutch sister companies share a top company established in the EU or EEA (article 15(2) of the Dutch CIT Act). One of the two sisters is designated as the parent company of the fiscal unity in the request; the foreign top company itself does not join.

Both cross-border variants follow from the SCA Group Holding judgments of the European Court of Justice (12 June 2014, joined cases C-39/13, C-40/13 and C-41/13), which followed Papillon (ECJ 27 November 2008, C-418/07), and the subsequent Dutch Supreme Court rulings of 19 December 2014 (BNB 2015/91-93). The legislature codified this in the Dutch CIT Act as of 9 December 2016 (Stb. 2016/504).

Third countries: no Papillon, no sister fiscal unity

The Papillon and sister fiscal unity only apply to intermediate or top companies established in the EU or EEA. An intermediate holding company in the United States, the United Kingdom (no longer an EU member state since Brexit) or Switzerland does not qualify. If the chain runs through such a country, there is no route to a fiscal unity between the Dutch group companies along that line, even if the other conditions are met. The exception is if that foreign (intermediate) holding company itself has a Dutch permanent establishment to which the shares in the Dutch subsidiary are attributable (article 15(8), first indent): in that case the route runs not through Papillon or the sister fiscal unity, but through the permanent establishment route described above.

What must the request contain?

For a regular fiscal unity you complete Part A and Part B of the Belastingdienst form. For a Papillon or sister structure, the Belastingdienst also uses Part C for this; you substantiate the structure with the foreign intermediate or top company yourself, with a structure chart of the full chain as an attachment. The request must reach the Belastingdienst no later than three months after the desired consolidation date, article 15(9) of the Dutch CIT Act. Run the eligibility check for the regular requirements; assess the permanent establishment, Papillon or sister route separately (or with an advisor). Read how to request a Dutch CIT fiscal unity for the rest of the procedure.

Frequently asked questions

Can a US subsidiary join a Dutch fiscal unity?

No, unless that subsidiary has a Dutch permanent establishment. A US company with no Dutch activity does not meet the establishment requirement and cannot join, not even through a Papillon or sister structure, because the US is not an EU or EEA country.

Does a German or Belgian intermediate holding count towards the 95% chain?

Yes, in a Papillon fiscal unity the full chain from the parent, through the foreign intermediate company, to the grandchild must meet the 95% requirement. The intermediate company itself does not count as a member of the fiscal unity, but its shareholding is decisive for the 95% test.

Must the foreign intermediate or top company have a BV-like legal form?

It depends. In a Papillon fiscal unity, the intermediate company (paragraph 5) must have a legal form comparable to a BV or NV, with capital divided into shares. In a sister fiscal unity, the top company (paragraph 6) may also be a cooperative, a mutual insurance association, or a comparable foreign legal form. That requirement is therefore wider than for the intermediate company.