Clarification on the interaction between Dutch transfer pricing mismatch rules and foreign participation exemption regimes

Background

As of 1 January 2022, the Netherlands has anti-abuse legislation against double non-taxation resulting from transfer pricing mismatches. Pursuant to Article 8bd Dutch Corporate Income Tax Act (CITA), the Dutch corporate income tax (CIT) base for the acquirer of assets or liabilities transferred through contributions, distributions, mergers and demergers is at maximum (for assets) or at minimum (for liabilities) the value included in the transferor’s tax base. The wording of this provision led to uncertainty on the scope of this legislation in relation to the transfer of participations that qualify for a participation exemption and whether any subsequent gains or losses following a transfer would still be exempt.

On 17 March 2025, the DTA published a KG position in which they clarified the application of the Dutch participation exemption in relation to subsidiaries whose tax basis is potentially impacted by Article 8bd CITA (reference made to our website post on this previous KG position). Supplementing that KG position, the DTA published a KG position on 20 August 2025, in which they clarified that Article 8bd CITA does not apply in the case of the transfer of a participation to which the transferor applies a foreign regime that effectively functions as an objective exemption.

KG positions contain the DTA’s analysis of the tax aspects of specific cases presented to the respective KG. As KG positions constitute policy of the DTA, taxpayers can rely on such positions as of their publication date.

Facts and circumstances

This KG position analyses the application of Article 8bd CITA in the following situation:

A Dutch Parent Company owns all shares in a foreign subsidiary, Company D. Company D owns all shares in another foreign subsidiary, Company KD. Company D distributed and transferred the shares in Company KD to the Dutch Parent Company by way of a profit distribution. At the time of transfer, the fair market value of Company KD was 90, whereas the book value of the participation on Company D’s tax balance sheet was 70.

Under the tax laws of Country A (the jurisdiction of residence of Company D), the distribution had to be accounted for at book value. This is because any gain realised on the transfer of a participation would in any case be fully exempt under a local regime that operates in the same way as an objective exemption (such as the Dutch participation exemption). In other words, even if Company D had recorded the distribution at fair market value, the resulting gain of 20 would have been exempt in Country A.

The question was whether Article 8bd CITA requires the Dutch Parent Company to record the participation at the lower book value (70) for CIT purposes rather than at fair market value (90).

KG position

The KG position clarifies that Article 8bd CITA is in principle applicable to the transfer of participations, since they qualify as “assets” within the scope of the provision. However, the provision should not be applied where the absence of taxation at the level of the transferor is the result of an objective exemption, rather than a mere difference in valuation.

In the present case, the local regime in Country A effectively operates as an objective exemption: the gain would in any case have been exempt, even if the distribution of the shares had been accounted for at fair market value. Accordingly, the Dutch taxpayer may record the participation at fair market value (90) for CIT purposes.

The burden of proof to demonstrate that the foreign regime qualifies as an objective exemption regime lies with the taxpayer. This is a factual test, to be assessed by the inspector based on the applicable foreign legislation and the taxpayer’s documentation.

Importantly, even if Article 8bd CITA would be applied and the participation had to be recorded at the lower book value (70), there would not be an impact on the Dutch taxable profit because the Dutch participation exemption would still apply at the level of the recipient (reference to the previous KG position).

Our view

This beneficial KG position clarifies that Article 8bd CITA is intended to counter artificial mismatches, not objective exemptions embedded in foreign corporate tax systems. It is particularly relevant and helpful for cross-border reorganisations of subsidiaries involving jurisdictions with participation exemption rules.

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