New Year’s Resolution: Limitation of Liquidation Loss Relief

By Carijn Franssen, EJP Accountants & Adviseurs

Every year, on 01 January, the Dutch government implements changes in its tax law, as announced on Budget Day. For 2021, one of these changes is limitation of liquidation loss relief. Please find below the most important adjustments to the liquidation loss relief regulations.

The Parent-Subsidiary Directive is implemented in Dutch tax legislation. Therefore, in general, the results of subsidiaries are exempt from Dutch corporate income tax at its parent company (“ParentCo”). Consequently, neither are the profits of subsidiaries taxable, nor are losses tax deductible at ParentCo.

An exception to this main rule is the relief of liquidation losses: Dutch tax legislation allows ParentCo to deduct these losses from its own taxable amount. From a Dutch tax perspective, there is a liquidation loss in case the sacrificed amount for a subsidiary exceeds the liquidation surplus.

Up to 31 December 2020, there were some limitations for deducting liquidation losses, with a main limitation in the rule that the former business activities of the subsidiary may not be continued in the group of ParentCo. As of 01 January 2021, the Dutch government made some amendments in the liquidation loss relief regulations by adding additional limitations. As of this date, it is only possible to claim a liquidation loss if the liquidation is completed within three years after the business activities of the liquidated subsidiary have been ceased.

For liquidation losses exceeding EUR 5,000,000, three additional requirements are applicable:

1. Quantitative requirement

ParentCo must have decisive influence over the liquidated subsidiary. Usually this means that at least 50% of the shares are held by ParentCo.

2. Territorial requirement

In order to qualify, the liquidated subsidiary should be located in the Netherlands, the EU, the EER and third countries who have a qualifying Association Agreement with the EU.

3. Temporal requirement

The shares of the subsidiary must be held for at least five consecutive years, directly before the liquidation of the company.

Implementation of the abovementioned requirements can lead to situations where, in fact, a liquidation loss cannot be effectuated.

Long story short: if you have a Dutch (intermediate) holding company, and you intend to liquidate your subsidiary, please be aware of the limitations of the Dutch liquidation loss relief regulations.

Carijn Franssen

Carijn Franssen

GGI member firm
EJP Accountants & Adviseurs
Auditing & Accounting, Corporate Finance, Tax
‘s-Hertogenbosch, The Netherlands
T: +31 73 850 72 80
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EJP Accountants & Adviseurs are auditors, advisers, and challengers. Their 40 auditors and international tax lawyers have a wide range of expertise. Their main fields of expertise are Dutch corporate and personal income tax, international taxation, Dutch royalty, interest and dividend withholding tax, estate planning, and wage tax. They have an AFM license to perform audits for the larger midsize companies.

Carijn Franssen completed her master’s degree in tax economics at Tilburg University in 2014 and has been part of the EJP team since 2020. She has gained experience in the SME practice and, as an all-round tax specialist, focuses on tax advice for the director/major shareholder in the broadest sense of the word.

Published: International Taxation Newsletter, No. 14, Spring 2021 l Photo: Celli07 -

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