In a judgment delivered on 12 June 2014 in the case SCA Group Holding BV and others, the ECJ (European Court of Justice) held that the provisions of Dutch tax law which preclude fiscal unity (consolidated tax treatment) where shares in resident sister companies are held by a common parent resident in another EU members state without a permanent establishment in the Netherlands or where an indirect subsidiary is held via one or more EU companies, is not compatible with the principle of freedom of establishment.
The Dutch fiscal unity regime allows groups of companies to file a single tax return and offset losses incurred by one company in the group against profits of another thus calculating Dutch corporate income tax on a consolidated basis. Under the current fiscal unity regime, where Dutch companies have a linking company, whether parent or intermediary company/companies in another Member State it is not possible for such consolidation to take place.
In its ruling, the ECJ was of the view that these preclusions put the EU cross border groups at a disadvantage compared to purely domestic groups. The Court could find no valid grounds to justify this either by an objective difference of situation nor by a public interest consideration based on the coherence of the tax system including the double use of losses. In the light of this decision, the Dutch tax authorities should allow Dutch fiscal unity to those groups that are linked via intermediate or parent companies located in another EU member state. This decision may also impact on other Member States which permit group consolidations.
