Netherlands: Updated policy statement on hybrid mismatches, deduction allowed in cost-plus situations

The deduction of costs in cost-plus situations does not violate the anti-abuse measures and thus generally is allowed.

Deduction allowed in cost-plus situations

The Deputy Minister of Finance on 3 November 2022 published an update to the policy statement on hybrid mismatches (Dutch) that states that the deduction of costs in cost-plus situations does not violate the anti-abuse measures and thus generally is allowed.  


The Corporate Income Tax Act 1969 has included anti-hybrid mismatch measures in line with the ATAD2 directive since 1 January 2020. In general, a hybrid mismatch is any situation in which differences between tax systems with regards to the qualification of entities, instruments or permanent establishments lead to:

  • Deduction, but the corresponding income is not taxed anywhere (“deduction without inclusion”)
  • Deduction of the same fee, payment, expense or the same loss more than once (“double deduction”)

The Dutch anti-hybrid mismatch measures combat these outcomes by refusing the deduction or taxing the income.

However, in certain hybrid mismatch cases, a deduction will not be refused or income will not be taxed to the extent there is dual inclusion of income.

During the parliamentary debates a case was raised where a U.S. parent company (US Inc) held 100% of the shares in a Dutch private limited liability company (NL BV) that was transparent for U.S. tax purposes but non‑transparent for Dutch tax purposes and therefore subject to Dutch tax. US Inc earned 130 of income. NL BV produced on behalf of US Inc and had 100 in costs. NL BV received an arm’s length mark-up of 10% of the costs and thus received a fee of 110 from US Inc.

The conclusion was that the 100 in costs incurred by NL BV were, in principle, deductible in the Netherlands. However, these costs were also deductible in the United States because NL BV was regarded as transparent for U.S. tax purposes. Thus, there was a double deduction, and the deduction of 100 was not allowed to be taken into account in determining the profit of NL BV, unless there was dual inclusion income. Although the fee of 110 that NL BV received was subject to tax in the Netherlands, it was not taxed in the United States, thus there was dual inclusion income.

Update to policy statement on hybrid mismatches

In the updated policy statement on hybrid mismatches, the Deputy Minister notes that the European Commission (EC) was recently again approached about whether, in line with the spirit and intent of the ATAD2 directive, the anti-hybrid deduction limitation may nevertheless be disregarded in certain cost-plus situations. The result of that discussion was that in specific circumstances it may be concluded that there is dual inclusion income.

This means that in the example above, the cost-plus fee of 110 now qualifies as dual inclusion income because:

  • The deduction limitation results in double taxation—deducted only once (100 at US Inc) and income taxed twice (130 at US Inc and 110 at NL BV)
  • The cost-plus fee is subject to a profit tax at NL BV and is not directly or indirectly deducted from the tax base of a profit tax (“taxed without a corresponding deduction”)

This position applies to financial years commencing on or after 1 January 2020, and tax assessments that have become irrevocable can be reduced ex officio.

KPMG observation

The Deputy Minister has stated that he believes it is conceivable that the spirit and intent of the double income exemption may also apply in situations other than the cost‑plus case outlined above. Just how broadly or narrowly this statement can be construed is not clear from the text of the policy statement.

Read a November 2022 report prepared by the KPMG member firm in the Netherlands 


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