Dutch limitation of deduction of liquidation losses on subsidiaries
During Budget Day 2021 the Dutch cabinet announced that it plans to limit the deduction of (foreign) liquidation losses on subsidiaries of Dutch companies as per 2021. Dutch companies with subsidiaries might therefore have to complete the dissolution of its subsidiary before the end of this year in order to avoid a limitation of the deductibility of the liquidation loss.
This proposal limits the deduction of liquidation losses on subsidiaries in the following ways:
- a controlling interest (i.e. more than 50% of the voting rights) in the dissolved entity would be required (quantitative limitation);
- liquidation losses would only be deductible with respect to subsidiaries that are resident in the EU/EEA (territorial limitation); and
- a liquidation loss would only be deductible if the dissolution of the subsidiary is completed ultimately in the third calendar year following the year in which the subsidiary’s activities were terminated (temporal limitation).
If all three requirements are met, the total liquidation loss will be deductible. It is proposed that these changes will go into effect on January 1, 2021.
It should be explicitly mentioned that the first two limitations, the quantitative and territorial limitation, should in principle also be met during the five years immediately preceding the completion of the liquidation of the assets of the dissolved entity. Please note however that both the quantitative and territorial limitation only apply to the extent the liquidation loss exceeds EUR 5 million. This means only the temporal limitation applies in case the liquidation loss does not exceed EUR 5 million.
Regarding the third limitation, the temporal limitation, the proposal includes transitional law for unrealized liquidation losses. If a termination of activities of the subsidiary or has occurred or was decided prior to January 1, 2021, the resulting liquidation loss can in principle be deducted until December 31, 2023.
If you have any questions about the aforementioned legislative proposal and how it might impact you, feel free to contact the specialists at Crowe Peak.