Netherlands hit in €400m EU court ruling on tax regulations

A Dutch tax regulation for deductible interest on loans between parent companies and subsidiaries is in conflict with EU rules, the European Court of Justice ruled on Thursday. Last year Eric Wiebes, the State Secretary of Finance, warned that this ruling could cost the Dutch treasury 400 million euros, NU.nl reports.

Under Dutch law, this interest deduction only applies if a parent company and subsidiary companies that form a tax entity are all established in the Netherlands. If the parent company provides a loan to a subsidiary, and the subsidiary pays interest on that loan, the parent company can deduct that interest from the taxable profit with the Dutch Tax Authority. But companies in the Netherlands that lend to subsidiaries abroad can not do so.

That is discrimination and therefore in violation of the rules for free establishment in the European Union, the European Court of Justice ruled on Thursday.

Last year a senior advisor for the court, the Advocate General, already concluded that this regulation is in violation with EU rules. The court usually follows the Advocate General's advice. The government is therefore already working on a repair law that will result in thousands of companies in the Netherlands having to pay more taxes.

State Secretary Menno Snel of Finance called the court ruling regrettable. He will send the repair law to the Tweede Kamer, the lower house of Dutch parliament, in the second quarter. The law will be implemented retroactively on October 25th last year, according to the newspaper.

According to entrepreneurial organizations VNO-NCW and MKB-Nederland, this ruling will affect an estimated 11 thousand companies. The organizations call the abolishment of this tax regulation a "great loss" and call on Snel to come up with a new regulation as soon as possible. They would like to see as little change as possible, so that companies are not hit so hard. "We have to stay as close to the existing system as possible", the organizations said, according to the newspaper.