Netherlands: Government puts an end to ATAD 2 uncertainty regarding certain cost+ payments

Dutch government updates Hybrid Mismatch Decree

In brief

On 3 November 2022, the Dutch government published an updated version of the Hybrid Mismatch Decree ("Decree").

The Decree now also provides relief for taxpayers in certain cost+ situations which led to double taxation under the prior rule. In these situations, it has now been confirmed that the anti-hybrid mismatch rules will not deny deduction in the Netherlands.

The Decree will apply to financial years starting on or after 1 January 2020 (the effective date of the anti-hybrid mismatch rules). Final tax assessments which have already been imposed for these years can still be amended by the Dutch tax authorities ex officio (in Dutch: "ambtshalve vermindering").


The anti-hybrid mismatch rules are incorporated in art. 12aa of the Dutch Corporate income tax act 1969 ("Anti-Hybrid Mismatch Rules"). The Anti-Hybrid Mismatch Rules aim to avoid that MNEs can deduct certain payments for tax purposes in multiple jurisdictions. See our client alert from 31 December 2019 re hybrid mismatches.

In certain situations, however, it appeared that the Anti-Hybrid Mismatch Rules led to double taxation. The following example illustrates the most common situation. 

US Inc. holds all the shares in Dutch BV. BV is disregarded for US federal tax purposes. BV provides a service to US Inc. and is remunerated for that service on a cost+ basis. The US sells products to a third party:

Image 1_590x439

BV is disregarded for US tax purposes and therefore qualifies as a hybrid entity. As a result, the costs of 100 borne by BV are in principle deductible both in the US and in the Netherlands and therefore qualify as a double deduction. As the payment by Inc. to BV is not "visible" in the US, there is no double income inclusion. The Anti-Hybrid Mismatch rules would therefore deny the deduction of costs at the level of BV.

The above example effectively results in double taxation since the taxable income in the Netherlands (i.e., 110) is more than the stand-alone profit of BV for statutory purposes (i.e., 10) or the consolidated profit of the group (i.e., 30).

The Dutch government previously acknowledged that this situation results in double taxation and raised the matter with the European Commission. At the time, the indication was that no exception could be made, based on a grammatical interpretation of the provisions in the EU ATAD 2 Directive.

However, in more recent discussions with the European Commission, it was decided to apply a teleological interpretation of the ATAD 2 Directive and that member states can grant an exception for these specific situations.


The updated Decree now provides that in these specific situations the anti-hybrid rules do not apply and therefore, the costs are deductible in the Netherlands, provided that:

  1. There are indeed costs that lead to a double deduction, as referred to in Section 12aa, subsection 1. In the example, both at the level of US Inc. and BV, 100 of costs are deducted.
  2. The deduction limitation in art. 12aa effectively leads to double taxation. In the example, the costs are effectively only deductible at the level of US Inc., while the income is taxed both at the level of Inc. and BV (130 at the level of Inc. and 110 at the level of BV).
  3. The cost+ compensation is subject to corporate income tax in the Netherlands. In the example, this 110 is taxable at the level of BV and that payment is effectively not deductible for tax purposes at the level of US Inc. or elsewhere.

In addition, the updated Decree also clarifies a few other situations, including that for the "cooperative group" expansion the intent of the taxpayer is not decisive. And with respect to foreign cross-border tax consolidations, the Decree confirms that these regimes can in fact, lead to deduction/no inclusion or double deduction as well as double inclusion. The Decree includes some illustrative examples to support this view.

Next steps

Specifically if you are or were in a cost+ situation as described above and the anti-hybrid rules limited the deduction of costs for Dutch tax purposes, we recommend to review your 2020 and 2021 corporate income tax returns and CIT assessments and take action if needed. One of our experts can assist you with this review and subsequent steps. Please reach out to your local Baker contact or one of the authors of this alert.

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