Withholding Tax (Corporate Tax)

Like in Case study A, Companies A and B are established in your country. In year 1
Company A has a (positive) net income of 3.000 (in local currency) and Company B has
a (negative) net income of 2.000 (in local currency). Only now, Company A holds 100%
of the shares of Company B. How much corporate income tax would Company A and
Company B pay in year 1 under the corporate income tax laws of your country? Can
Company A and Company B benefit from a combined tax reporting regime under these
circumstances? If so, calculate how much corporate income tax would, Company A and
Company B pay in year 1 under the corporate income tax laws of your country

Correct
Companies are legal entities, which can conclude contracts in their own names. For that
reason, typically, companies are taxed individually, even if the companies are part of the
same group or when one company holds all (or a significant percentage of) the shares
of a subsidiary in the same country (as in case study 2). If a combined tax reporting
system applies, Company A and Company B may be able to file a joint tax return,
potentially taking into account their combined taxable income.

For example, under the facts & circumstances outlined and if Company A and Company
B are established in the Netherlands, both companies would normally be subject to
Dutch corporate income tax (we refer to the tax outcomes as calculated in Case study
A).

The Dutch corporate income tax system includes a system for combined tax reporting,
the so-called ‘fiscal unity’ regime. The Dutch fiscal unity regime allows participating
entities to file a joint tax return and to offset losses of one participating company against
the profits of another participating company in a taxable year. The fiscal unity regime
also eliminates transactions between entities within the fiscal unity (anti-abuse rules
apply).

The fiscal unity regime is optional (upon request) and open to companies, which meet
certain requirements. Importantly, the parent company of the fiscal unity regimes should
own at least 95% of all of the issued share capital of the other participating companies.
The regime is open only to companies, established in the Netherlands, and foreign
companies, which have significant activities (permanent establishment) in the
Netherlands.

Under the fiscal unity regime, the Dutch corporate income tax due for Company A and
Company B in year 1 would be calculated as follows:

- Company A (parent of fiscal unity): 1.000 (3.000 -/- 2.000) x 20% = 200.