Mergers

In case of a merger, the disappearing (absorbed) company is deemed to transfer all its assets to the acquiring company. Because this transfer of assets is deemed to take place against fair value, based on the arm’s length principle, this leads to a taxable gain for the disappearing company. It is, however, possible that the merger can proceed without the levy of corporate income taxes in case the following conditions are met:

• The involved companies apply similar taxable income computation rules;
• None of the companies involved has carry forward tax losses;
• None of the companies involved has foreign tax credits;
• None of the companies involved applies the innovation box;
• None of the companies involved applies the object exemption method;
• None of the companies involved applies a tax credit for participations (deelnemingsverrekening); and
• Subsequent taxation is ensured.

If all conditions are met, the merger can proceed without tax consequences. The acquiring company will then take over the tax positions of the disappearing company. The assets are not revaluated but will appear in the balance sheet against their old book values. In case of a cross-border merger or division, the domestic tax laws allow a step-up in the value of assets to the fair market value, when the acquiring company is a Dutch company, and the target of the merger or division is not resident in the Netherlands, and the assets do not include shares of a Netherlands-based company.

In the situation that one or more of these conditions is/are not met, it is possible to lodge a request with the tax authorities to allow the merger to proceed without tax consequences. In practice, the authorization is granted in most cases, but the tax authorities do have the possibility to impose additional terms to such a merger.

A tax neutral regime will be disallowed if the merger is predominantly aimed at the circumvention or deferral of taxation. A merger is deemed to be predominantly so aimed if it is not supported by business considerations, such as the restructuring or rationalization of the activities of the parties involved.

With regard to VAT, a merger is normally not considered a taxable transaction. For real estate transaction tax, an exemption is also available.

Demergers

For demergers, roughly the same rules apply as for mergers. There is, however, a difference between a split-up demerger (zuivere splitsing) and a spin-off demerger (afsplitsing). With respect to both demergers, the entity that will be split is deemed to have transferred its assets (wholly or partly depending on the type of demerger) to the acquiring companies. This transfer is deemed to have been made against fair value, thus leading to a taxable gain in case the book value of the assets is lower than the fair value.

In the case of a spin-off demerger, the (fictitious) taxable gain will benefit from an exemption subject to the following conditions (which are largely the same as for mergers above):

• The involved companies apply similar taxable income computation rules;
• None of the companies involved has carry forward tax losses;
• None of the companies involved has foreign tax credits;
• None of the companies involved applies the innovation box;
• None of the companies involved applied the object exemption method;
• None of the companies involved applies a tax credit for participations (deelnemingsverrekening); and
• Subsequent taxation is ensured.

If these conditions are met, the taxable gain arising from the demerger will not be subject to tax. Instead, the acquiring companies will take over the tax positions of the disappearing or spinned off company. The assets are not revaluated but will appear on the balance sheet against their old book values. Where one or more of the above conditions is not met, it is still possible to file a request for application of the tax neutral regime with the tax authorities. In practice, permission is granted in most cases, although the tax authorities may impose additional terms with respect to the demerger.

In the case of a split-up demerger, it is always necessary to formally file a request for the application of the demerger exemption with the tax authorities.

In both cases, the demerger exemption will be disallowed if the demerger is deemed to be predominantly aimed at the circumvention or deferral of taxation. A demerger is deemed to be so aimed if it is not supported by business considerations, such as the restructuring or rationalization of the activities of the parties involved. If the shares in the (spin-off) demerged company or the acquiring companies are alienated, in whole or in part, directly or indirectly, to an unaffiliated company within three years after the demerger, it is deemed that business considerations are absent unless proven otherwise.

With regard to VAT, a demerger is normally not considered a taxable transaction. Finally, an exemption is available with respect to the real estate transaction tax.

Contribution of a Branch of Activity

When a corporate taxpayer transfers its entire active venture or an independent part of its venture to another corporate taxpayer and, in return, receives shares in the receiving company, this will normally be considered a normal business transaction leading to a taxable gain. The gain is not recognized for tax purposes provided:

• The involved companies apply similar rules for the determination of taxable income;
• None of the involved companies has carry forward tax losses;
• None of the companies involved has foreign tax credits;
• None of the companies involved applies the innovation box;
• None of the companies involved applies the object exemption method;
• None of the companies involved applies a tax credit for participations (deelnemingsverrekening); and
• Subsequent taxation is ensured.

If these conditions are met, the acquiring company will then take over the tax positions of the contributing company. The assets are not revaluated but will appear in the balance sheet against their old book values. If one or more of the conditions is not met, a request for the application of the tax neutral regime may still be filed with the tax authorities. Permission is granted in most cases, but the tax authorities may impose additional terms.

The tax-neutral regime will be disallowed if the contribution is predominantly aimed at the circumvention or deferral of taxation.

With regard to VAT, such a transaction is normally not considered a taxable transaction. Further, an exemption from the real estate transaction tax is also available.

Exchange of Shares

Exchange of shares in a restructuring amongst corporate taxpayers may be exempt under participation exemption regime. For an explanation of the operation of the participation-exemption regime, see Sec. 6.6.

Conversion of a Legal Entity

The Dutch State Secretary of Finance has issued a decree on 13 April 2022 on the conversion of legal entities as per Article 28a of the Corporate Income Tax Act. The new tax policies are as follows:

• The converted legal entity replaces the legal entity to be converted for the settlement of withholding taxes;
• The converted legal entity does not have to apply for the functional currency scheme again if the legal entity to be converted made use of this scheme;
• At the request of the taxpayer, the conversion date may be set to the start of the financial year in which the conversion takes place (i.e., with retroactive effect), provided that:
  • the notarial conversion deed is executed within twelve months of the (retroactive) date;
  • no (incidental) tax advantage is intended or achieved; and
  • no profit is taken into account as a result of the conversion.

Further, it is clarified that the conversion under foreign law is not a taxable event for Dutch tax purposes if the foreign legal person continues to exist and no transfer of capital takes place. Also, if the foreign legal person is part of a fiscal unity (group) and is converted under foreign law, the fiscal unity is unchanged if the foreign legal person continues to exist and no transfer of capital takes place.

Moreover, with regard to cross-border conversions, where a foreign entity established under the law of an EU/EEA Member State is converted into a private limited liability company (B.V.) or a public limited liability company (N.V.), it is provided this will be treated as a conversion of an N.V. into a B.V. for tax purposes if:

• The conversion concerns a legal form established under the law of an EU/EEA Member State;
• The foreign entity has its registered office, central administration, or principal place of business within the EU/EEA; and
• The foreign legal form is comparable to the Dutch N.V. or B.V.

Where these conditions are met, the conversion is not considered a liquidation as per Article 28a nor a cessation of the taxpayer's existence for tax purposes and, therefore, such a conversion is not a taxable event. The same also applies in the reverse situation where a Dutch N.V. or B.V. is converted into a foreign legal form of another EU/EEA Member State. Further, such conversions will not affect fiscal unity.

Silent Conversion and Silent Return of an IB Company

A ‘silent’ conversion of an IB company into an NV or BV and vice versa (‘silent return’) is possible under certain conditions with retroactive effect from the beginning of the year, provided that certain legal acts are undertaken within 15 months of the desired retroactive effect.