The proposal follows the consultation draft of 29 October 2018. The purpose of the proposal is to neutralize the tax effects of hybrid mismatches, including payments to or by a hybrid entity and on hybrid financial instruments, by disallowing the deduction of such payments or by including the payments in the taxable income of the recipient. Other hybrid mismatches are also covered. Implementation must be completed by 31 December 2019, with an exception for the ‘reverse hybrid rule’, which should be implemented by 31 December 2021.

Notable differences with the consultation draft of 29 October 2018

The proposal is largely similar to the consultation draft of 29 October 2018. The most notable changes are the following:

  • Documentation requirement: the proposal provides for a new requirement for corporate taxpayers to include in their administration information that is relevant for determining if and to what extent a payment is affected by the new anti-hybrid mismatch rules. Such information may, inter alia, comprise a (global) structure chart of the group and an analysis of the treatment of financial instruments, hybrid entities and PEs under the relevant Dutch and foreign (tax) laws.
  • Exception for collective investment vehicles: the proposal provides for an exception to the ‘reverse hybrid rule’ for certain defined collective investment vehicles, in line with ATAD2. Such exception was not included previously.
  • Tax treaty overrules disregarded PE rule: the proposal clarifies that the implementation of ATAD2’s ‘disregarded PE’ rule should not affect the allocation of taxing rights under the tax treaties entered into by the Netherlands. If a tax treaty provides for an exemption of business profits of a disregarded PE, such exemption should continue to apply. The proposal notes that the Netherlands will aim to amend its tax treaties for these situations through treaty (re)negotiations.


The proposal in essence contains three types of rules to neutralize the tax effects of hybrid mismatches:

  • Denial of deduction: payments made by a Dutch corporate taxpayer may no longer be tax deductible if and to the extent such payments, as a result of a hybrid mismatch arrangement, are not regarded taxable income in the state of the recipient (deduction without inclusion; D/NI) or these payments (or expenses or losses) can be deducted twice (double deduction; DD). This rule is referred to as the ‘primary rule’. As an exception to this primary rule, deduction may in certain hybrid mismatch situations be allowed if and to the extent the deduction is set-off against so-called ‘dual inclusion income’. The proposal includes additional examples to clarify the concept of dual inclusion income.
  • Inclusion of income: income of a Dutch corporate taxpayer that would normally be exempt from Dutch corporate income tax or not be recognized, as a result of a hybrid mismatch arrangement, is included in the taxable income if the underlying payment was deductible in the state of the payer. This rule is referred to as the ‘secondary rule’.
  • Taxation of reverse hybrid entities: reverse hybrid entities (transparent for Dutch tax purposes and non-transparent for tax purposes in the residence state(s) of the participants in the entity) will be subject to Dutch corporate tax if incorporated, established or registered in the Netherlands. This rule is referred to as the ‘reverse hybrid rule’. It is announced that distributions by such reverse hybrid entities will also become subject to Dutch dividend withholding tax.

The primary and secondary rules should apply to financial years commencing on or after 1 January 2020 and the reverse hybrid rule should apply to financial years commencing on or after 1 January 2022.

Hybrid mismatches

The hybrid mismatches covered by the primary and secondary rules include:

  • Hybrid financial instruments: payments on financial instruments that result in a D/NI outcome as a result of differences in the characterization of the instrument. The transfer of financial instruments may under certain circumstances also qualify as such.
  • Hybrid entities: payments made by or to a hybrid entity that result in a D/NI or DD outcome.
  • Hybrid PEs: payments made to a hybrid or disregarded PE, as well as deemed payments between a PE and its head office, that result in a D/NI outcome. DD outcomes caused by hybrid PE arrangements are also covered.
  • Dual resident entities: payments made by an entity that is a tax resident in two states, that result in a DD outcome.
  • Imported mismatches: payments made on a non-hybrid instrument that (directly or indirectly) fund deductible payments in a hybrid mismatch arrangement as referred to above, unless one of the other states involved has made an equivalent adjustment in respect of the hybrid mismatch, similar to the adjustment that would be made under the Dutch rules.

In principle, only hybrid mismatch arrangements between related parties are covered (generally at least 25% voting rights, profit entitlement or capital ownership, as well as certain other situations of control), unless there is a ‘structured arrangement’.

The impact of the legislative changes will need to be assessed in all structures where a Dutch corporate taxpayer is (directly or indirectly) involved in a hybrid mismatch arrangement. It is irrelevant whether a taxpayer actually intended to create a hybrid mismatch outcome, as the ATAD2 measures are applied objectively.

CV/BV Decree relating to the Netherlands-US tax treaty

In parallel to the implementation of the anti-hybrid rules, the Dutch government will withdraw the so-called ‘CV/BV Decree’1 that deals with the application of the anti-hybrid entity provision in the tax treaty between the Netherlands and the United States. As of 1 January 2020, the tax treaty between the Netherlands and the United States will therefore no longer reduce the Dutch dividend withholding tax rate on distributions to certain reverse hybrid entities (such as certain Dutch CVs).


We will keep you informed on any further developments. Should you have any queries, please contact your trusted adviser at Loyens & Loeff.

1) Decree of 6 July 2005 (no. IFZ 2005/546M).