Background

The proposal published for consultation follows the implementation of the EU Mobility Directive (Directive (EU) 2019/2121) in Dutch civil law. As of 1 September 2023, Dutch civil law allows Dutch NVs and BVs to convert into (similar) capital companies governed by the law of another EU/EEA Member State, and vice versa.

Dutch tax law currently lacks specific provisions governing the tax consequences of such cross-border conversions. The legislative proposal includes new provisions and amendments to the Dividend Withholding Tax Act (DWTA), Corporate Income Tax Act (CITA) and Personal Income Tax Act (PITA).

It is specifically clarified that the legislative proposal addresses the tax consequences of (cross-border) conversions and not the tax consequences of a change in the place of effective management, which has separate tax consequences.

Conversion fictions

The current Dutch tax rules applicable to (domestic) conversions entail that such conversions – as a main rule – result in a deemed liquidation of the entity to be converted, followed by a deemed dividend distribution to the participants and a deemed contribution by these participants into the converted entity (the so-called “conversion fictions”). As a result, a conversion constitutes a taxable event for the purposes of Dutch corporate income tax at the level of the entity to be converted as well as Dutch dividend withholding tax and Dutch personal income tax at the level of the participants. The proposal extends the application of this main rule to ensure that not only domestic conversions, but also cross-border conversions and conversions under foreign or EU law are in scope, provided there is a Dutch tax nexus. This ensures that the tax consequences are clear and consistent, regardless of the jurisdiction involved, and that a possible Dutch tax claim is secured.

Codification and expansion of exceptions

The legislator proposes to explicitly codify and expand the exceptions to the main rule for situations where there is no risk of losing a Dutch tax claim. These exceptions and their respective conditions will be included in the relevant tax laws to ensure that the legal framework is more robust and comprehensive. If an exception applies, the (cross-border) conversion will be tax neutral.

It is proposed that the exceptions will not only include situations where the entity remains an NV, BV or a comparable foreign legal entity, but also situations concerning conversions to other specifically mentioned legal forms. It should be noted that the exceptions in the DWTA are more limited than the exceptions in the CITA and PITA.

Specific amendments and modernisation

The proposal also includes some specific amendments, such as excluding the possibility for the tax inspector to deviate from the main rule upon request from the taxpayer (as exceptions will be fully codified). Also, certain terminology will be aligned with other recent legislative changes.

It is proposed to include specific provisions in each of the relevant laws (DWTA, CITA and PITA), rather than the current reference to all relevant taxes in one (CITA) provision. This approach should improve clarity and legal certainty for taxpayers.

Impact on contemplated conversion?

If you are currently contemplating a conversion involving a Dutch entity, we recommend to verify whether the provisions put forward in the legislative proposal would have a (positive or negative) impact on the Dutch tax consequences. An attention point may be that the proposed rule for the DWTA includes fewer exceptions than those proposed for the CITA and PITA, which may result in divergent tax outcomes.

Moreover, unlike the current practice, where the Dutch tax authorities may grant a roll-over facility under conditions designed to safeguard Dutch tax claims, the legislative proposal does not provide taxpayers with the option to request such a facility if none of the listed exceptions apply.

Next steps

The internet consultation ends on 1 December 2025. Until then, it is possible to either anonymously or publicly submit comments to the legislative proposal via internet. It is possible that the legislative proposal will be amended in reaction to the responses. Also, despite its rather technical nature, please note that the outcome of elections for the House of Representatives (Tweede Kamer) may affect the parliament’s view on this legislative proposal.

We will continue to closely monitor the developments. If you have any questions following this publication, please feel free to contact us. Of course, we can assist you with further analysis on the impact of the consulted measures. Also, in case you wish to submit a response to the published consultation, we are happy to assist.