Tax Thursday: intercompany costs not deductible in case of hybrid mismatches (ATAD2)

As of January 1^st, 2020, the EU Anti-Tax Avoidance Directive 2 (ATAD 2) has been introduced in the Netherlands (and other EU countries). ATAD 2 aims to neutralize hybrid mismatches resulting from a difference in tax qualifications between various countries, resulting in a  ‘double tax deduction’ or ´deduction without inclusion´.

Impact

Sanctions may include the denial of deductions and the inclusion of payments in the Dutch taxable income.

The anti-hybrid provisions do not apply in case the income is also double taxed. However, in case the income is taxed at a reduced rate (instead of the statutory tax rate) or in case the Dutch CIT can be credited, the provisions can still be applicable.

In addition, companies must have documentation in their administration substantiating whether hybrid mismatch rules do (or do not) apply, specifically for ATAD 2.

To do

Multinational companies should review whether the anti-hybrid provisions apply on their structure. Especially in cases involving countries that often include hybrid entities in their structure, such as the US.In addition, multinational companies should prepare documentation including the analysis of the hybrid mismatch rules.

Questions

If you have any questions, please contact Hugo Everaerd. [email protected]