Tax entity: cancel or maintain

Do you have several private limited companies in the Netherlands which are affiliated with each other? Then it may be profitable to regard these companies as a tax entity for corporation tax.

A tax entity for corporation tax

A tax entity offers the possibility to regard companies which are affiliated with each other in a group (at least 95% shares and/or voting rights) as one taxpayer for the Corporation Tax Act 1969.

Advantage tax entity

The advantage of a tax entity is that profits and losses can be set off against each other during a financial year (between companies of the entity). Corporation tax is then calculated on the balance of the profit of the group.

Advantages tax entity with profit

However, a tax entity may also have disadvantages. For example, when all companies of the entity make a profit. The profit up to € 200,000 will be taxed at 19%. The profit above € 200,000 will be taxed at 25%. When all companies of the entity make a profit a rate of 25% applies. By cancelling the tax entity, a rate again of 19% over the first € 200,000 of profit can apply again to each company that used to belong to the entity. This is a result of the fact that all companies will become subject to taxation again on an individual basis.

Tax corrections

Attention: before you proceed with cancelling the tax entity, it must be checked first whether a cancellation does not result in tax corrections. Corrections will apply, amongst others, when assets have been moved between companies within the tax entity during the last 6 years.

Bankruptcy

A tax entity can also have negative effects when a company of the entity goes bankrupt. After a bankruptcy the Tax and Customs Administration has far-reaching powers to set off tax refunds of companies within the tax entity against debts of the bankrupt company.