Limitation of liquidation loss scheme
The government will tighten up a number of conditions in the current liquidation loss scheme in the corporate income tax act. A bill has been submitted by a number of members of parliament and the government has indicated to adopt this proposal. The proposed measures will be discussed in this article.
Liquidation loss scheme
The liquidation loss scheme entails that a parent company can deduct the loss incurred on liquidation of a participation. In this way, the parent company can prevent that non-settled losses from its subsidiary will vanish. To determine the deductible liquidation loss, the difference between the invested amounts and the (possible fictitious) liquidation payments received by the parent company, can be deducted from the taxable result.
New liquidation loss scheme rules
In practice, international organisations create structures to allow losses artificially be incurred in the Netherlands. Erosion of the Dutch tax base often takes place by creating such a deduction of liquidation losses. This is why the government proposes the following measures:
- Limitation of the liquidation loss scheme to liquidations of subsidiaries in which the parent company holds a qualifying interest of more than 50% (material limitation);
- Limitation of the liquidation loss scheme to liquidations of subsidiaries located in the EU/EER (territorial limitation);
- Limitation of the possibility of long-term postponement of the deduction moment of a liquidation loss (temporal limitation).
Similar limitations will apply to the loss scheme for winding down permanent establishments abroad. The limitation of the liquidation loss scheme will apply for liquidation losses of more than € 5 million.