Dutch Government Proposes Anti-Hybrid Rules To Comply With EU's ATAD2

; posted on
October 30th, 2018

The Dutch government published a preliminary proposal implementing rules on hybrid mismatches as required under the amended EU Anti-Tax Avoidance Directive (ATAD2). The implementation of ATAD2 in the Dutch legislation will lead to changes in the 1969 Corporate Income Tax Act. The proposal is expected to lead to a decrease in tax avoidance through hybrid mismatch structures.

The proposal

There are three types of rules in the proposal initiated by the government as follows:

  • Denial of deduction: Government will deny the deduction of payments made by Dutch tax resident to the extent the payment is not regarded as taxable income in the state of a recipient as a result of a hybrid mismatch or in case the payment is deducted twice as a result of such hybrid mismatch.
  • The inclusion of income: in case of deduction is allowed to be inferred by payor state due to a hybrid mismatch, Dutch corporate taxpayer as recipient is required to include the income in taxable income even though in a normal situation such income would be exempt from Dutch corporate income tax or would not be recognized as income.
  • Taxation of reverse hybrid entities: a reverse hybrid entity is a situation where entity regarded as transparent for Dutch tax law purpose but opaque for tax purposes in the residence states of the participants in the entity. In this situation, the entity will be regarded as Dutch corporate taxpayers in case they are incorporated, established or registered in the Netherlands

The proposal goes beyond the EU directive by excluding an optional exemption for financial traders.

However, it also specifies that the proposal applies only to mismatches with a hybrid element and excludes mismatches caused by differing approaches to transfer pricing or the absence of corporate tax in one jurisdiction. In principle, only hybrid mismatches between related entities are covered by the proposal unless there is a structured arrangement.

Open consultation

The Dutch Ministry of Finance opens a consultation on this proposal. Interested parties are invited to react to consultation documents and are allowed to include the whole consultation document in their reaction. The consultation will run until 10 December 2018.

The proposal is proposed to apply the first two types of rules as from 1 January 2020 and the rule on reverse hybrid entities as from 1 January 2022, both in accordance with ATAD2.

Source: Dutch Government - Press Release


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