Holding company loss regime
If an entity having corporation tax liability incurs a loss during a particular financial year, it may in principle offset this loss against the profit it returns for another financial year. Loss offset will be limited if the entity’s de facto business operation during the relevant financial year was (all but) exclusively accounted for by the holding of participating interests. This holding company loss regime represents one of the remedies having come about in the wake of the European Court of Justice’s “Bos ruling” from 2003.
The Supreme Court of the Netherlands has now handed down a series of rulings on the theme of the holding company loss regime. It follows from the wording of the legislation that the application of the holding company loss regime is bound by two cumulative requirements, to wit the de facto business operation of the tax paying entity and the duration of the business operation in question being carried on. The Supreme Court rulings address the specifics of the duration requirement. The holding company loss regime makes no distinction between actively and passively held participating interests. According to the Supreme Court, what the legislator intended to stipulate was that it is only the period of time during which the participating interest is being held which matters where the application of the holding company loss regime is concerned. Any period during which the entity in question did not yet hold a participating interest or no longer held a participating interest will not count as a period during which the de facto business operation was made up of the holding of participating interests.