Tax Lawyers / Fiscalisten

vrijdag, 19 april 2019

Internet consultation limitation of current liquidation loss scheme

 Anne Lotte van Rij 

 Pieter Frolichs 


Internet consultation limitation of current liquidation loss scheme

Three members of the Dutch House of Representatives jointly prepared a legislative proposal that should limit the current liquidation loss scheme (applicable to participations) and the related cessation loss scheme (applicable to permanent establishments) on 16 April 2019. The legislative proposal and the Explanatory Memorandum were published as an internet consultation to give interested parties the opportunity to respond to the draft legislative proposal.

Currently the liquidation loss scheme and the related cessation loss scheme enable Dutch taxpayers to offset their liquidation losses related to worldwide subsidiaries and permanent establishments at the moment these losses would otherwise be permanently lost. The legislative proposal suggests to include a material, territorial and temporal limitation to these schemes.

Current schemes

Under the participation exemption capital losses related to participations (i.e. in short, subsidiaries in which Dutch tax payers hold at least a 5% interest) are exempt. The liquidation loss scheme is an exemption to this general rule. The rational behind the scheme is to prevent that in case of a liquidation of a participation losses would otherwise not be taken into account anywhere.

Based on the freedom of establishment the cessation loss scheme provides for a similar treatment for permanent establishments. In principle all benefits derived from a foreign permanent establishment are exempt. The cessation loss scheme allows Dutch tax payers to offset the losses from such foreign permanent establishments in case of a cessation.


The proposal suggests to include a material, territorial and a temporal limitation to the two schemes to prevent Dutch tax base erosion and the possibility to postpone tax deduction.

Material and territorial limitation

The draft bill proposes to limit deductibility of liquidation losses to:

  1. participations in which the Dutch taxpayer has:
    1. qualifying interest of 25% of the nominal paid-up share capital; and/or
    2. demonstrates it can determine the activities of the subsidiary as an effect of the influence it exercises on decision-making (together ‘material limitation’); and
  2. participation that are established in the Netherlands or in another EU/EEA (‘territorial limitation’).

Note that liquidation losses incurred in relation to a participation not meeting the material or territorial limitation are not deductible. The proposal contains an efficiency threshold of €1 million, meaning that liquidation losses not exceeding € 1 million per participation are not subject to the proposed limitations and are in any event deductible.  

Temporal limitation

The current scheme allows recognition of a liquidation loss when the liquidation of the dissolved participation has been completed. According to the proposal, the scheme should be more in line with the recently limited period of tax loss carry forward, the principle of sound business practice. In addition in their view the current legislation includes the possibility of misusage of the absence of a temporal limitation by deferring the deduction to any desired moment.

The legislative proposal therefore includes a temporal limitation that limits settlement to situations in which (in short) the liquidated entity is ultimately settled in the third calendar year following the year in which the business operations ceased or the decision thereto was taken. The draft proposal does provide for a rebuttal scheme (i.e. it should be convincingly demonstrated that the delay was business-motivated).


The legislative proposal is intended to have effect as per 1 January 2021, provided that the temporal limitation will for the first time apply to liquidation losses and cessation losses that were incurred on or after 1 January 2021. With respect to liquidation losses and cessation losses that were incurred before 1 January 2021 the legislative proposal contains a transitory period, whereby the three-years period will start on the effective date of the legislative proposal and taking into account possibility to use the rebuttal scheme.



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