Impact on the group's tax positions
Being aware of tax pitfalls and opportunities
It is key to start mapping out a sudden event's potential tax consequences for the group as soon as possible as these could have an immediate positive or negative impact on the group's financial position. This ensures that relevant actions are considered at the appropriate time, such as assessing if, and when, tax deductions can be applied and tax payments can be deferred. In corporate or financial transactions or restructurings, tax-related value items to be considered often include preserving and optimising the use of tax attributes (for example, NOLs) and preventing unintended or undesired taxable profits.
Tax pitfalls and opportunities in internal tax treatment and tax accounting
Potential internal tax and tax accounting measures include assessing if, and when, tax deductions can be applied in the form of impairments in respect of affected assets or of liquidation losses on liquidated or expropriated subsidiaries; and for immediately affected business, looking at possibilities for deferral of tax payments:
- From a Dutch tax perspective, assets, including intra-group receivables, may often be written down for tax purposes to the extent that the company can demonstrate that these assets have significantly decreased in value. The corresponding loss should be reported in the taxable year in which the decrease in value occurred and may reduce the amount of corporate income tax due over that year.
- A different regime applies to shares in operating subsidiaries. As profits are generally exempt under the Dutch participation exemption, the corresponding losses are generally not deductible, except that liquidation losses (including those arising from expropriation) may be deductible subject to strict conditions. However, liquidation losses from non-EU/EEA subsidiaries or activities are only deductible up to EUR 5 million from January 2021.
- If the group has debt or receivables outstanding in a different currency than used for reporting its taxable profits, the group could explore whether F/X losses resulting from an increase or decrease in that currency could be claimed for the outstanding debts or receivables.
- Companies looking at the need for impairments in their commercial annual or quarterly financial statements should also consider whether the impairment amounts may be effectively reduced by corresponding tax benefits. This may have a positive effect on the group's debt covenants.
Tax pitfalls and opportunities in transactions and restructurings
If one or more response scenarios may entail corporate or financial transactions or restructurings, tax-related value items often include:
- preserving and optimising the use of tax attributes (such as NOLs), taking into account change-of-control rules that could result in forfeiture of those attributes – this has become increasingly relevant as NOLs of Dutch tax resident entities created since 2013 can be carried forward indefinitely for Dutch corporate income tax purposes;
- preventing cancellation of debt income as a result of debt restructurings – this has also become increasingly relevant, because as of 2022, NOLs of Dutch tax resident entities can only be used to offset 50% of a group's taxable EBITDA if the latter exceeds EUR 1 million;
- in the case of corporate transactions, considering whether to structure these in the form of an asset sale or share sale and assessing if immediate taxation can be deferred when transferring assets within the group, for instance as a result of tax consolidation regimes; prevention of other transaction-related taxes, such as RETT and non-recoverable VAT, should also be considered;
- In relation to the termination of commercial or intra-group agreements, such as the VAT treatment of termination payments or outstanding invoices – these may be subject to VAT if considered a fee for a service for tax purposes, effectively increasing the termination payment by the applicable VAT rate if this VAT cannot be credited.