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Brussels, 7th February 2007

State aid: Commission opens in depth investigation into one part of proposed Dutch "Groepsrentebox" tax break scheme and approves other part

The European Commission decided to open a formal investigation procedure under EC Treaty state aid rules into planned reductions of the Dutch tax rates for net interests received on intra-group loans under a scheme called 'Groepsrentebox'. The opening of an in-depth investigation enables also interested third parties to submit their comments on the proposed measures but does not prejudge the outcome of the inquiry. At the same time, the Commission decided not to raise objections to the proposed reduced tax rate for interest on short term deposits, provided these deposits are aimed at acquiring at least 5% of the shares of a company. This latter measure would benefit equally all companies subject to Dutch corporate tax and would therefore be compatible with the Single Market.

Neelie Kroes, Competition Commissioner, said: "We must ensure that fiscal reforms do not introduce incentives that significantly distort companies' decisions on the location of their business activities within the Single Market".

In July 2006, The Netherlands notified a proposal for a tax breaks scheme called 'Groepsrentebox' with an annual budget of €475 million, aimed at reducing differences in the fiscal treatment between two instruments of intra-group financing, namely equity and debt. Currently, when a company injects capital into another company, the dividend it receives is tax exempted, whereas when it lends money, the interest received is taxed at the general corporate tax rate of 25.5%. The same is true for companies that receive funds: dividends paid for capital injections are not tax deductible, whereas interest paid for loans can be deducted at the general corporate tax rate of 25.5%.

The 'Groepsrentebox' scheme sets up two measures, which are in principle open to all companies subject to corporate tax in the Netherlands:

Lower taxation of intra-group interest

The first measure would lower the tax rate on interest received in the context of intra-group financing from the general corporate tax rate of 25.5% to 5%. If the intra-group balance of interest received and paid is positive, it would be taxed at a flat rate of 5%. If the balance is negative, it would be deductible at 5%. Although it appears to be open to all companies, the measure would de facto benefit only groups of companies and not individual companies. Furthermore, through the combination of a tax reduction on the one hand and a lower deductibility on the other hand, the measure appears to be tax neutral for Dutch groups and would be likely to attract only multinational groups of companies. Therefore, the Commission considers at this stage that the measure may confer a selective advantage to certain companies, in violation of EC Treaty state aid rules.

Lower taxation of short term deposits

The second measure that would be established by the proposed 'Groepsrentebox' scheme foresees a reduced 5% tax rate on the revenues generated by short term deposits, provided such deposits are subsequently used to acquire at least 5% of the shares of a company. This measure applies de facto to all companies, including those who do not belong to a group. The Commission has therefore concluded that this second measure does not confer a selective advantage to certain companies and is therefore compatible with EC Treaty state aid rules.

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