On 1 January, 2020, the Dutch implementation of certain parts of the EU Anti-Tax Avoidance Directive 2 ((EU) 2017/952) («ATAD2») came into effect for tax years starting on or after that date. These rules aim to combat tax avoidance that is the result of hybrid mismatches.


The following hybrid mismatches are targeted:

— hybrid entities;
— hybrid financial instruments;
— hybrid permanent establishments;
— hybrid transfers;
— imported hybrid mismatches; and
— situations involving dual residency.

If present, these hybrid mismatches are neutralized in case they result in the following:

— a double deduction; and
— a deduction without inclusion.

For both the double deduction and deductions without inclusions, a primary and a secondary rule will be implemented in the Dutch corporate income tax act. The primary rules generally deny the deduction of certain hybrid payments for Dutch corporate income tax purposes. The secondary rules generally include certain payments in the Dutch taxable base, whereby the participation exemption and the exemption for profits of permanent establishments are not applicable. The secondary rules are primarily foreseen for the application to situations with non-EU countries. Furthermore, certain additional documentation requirements have been created.

These rules apply in affiliated situations or where a so-called ‘structured arrangement’ is used. More stringent than the directive, the Dutch rules determine that affiliated means, among other things, an (in)direct share interest of 25% or more. A structured arrangement is an arrangement where non-affiliated parties conclude an arrangement:

— which takes into account advantages resulting from a hybrid mismatched in its pricing; or
— which was deliberately implemented in such a way as to cause a hybrid mismatch.

However, if the Dutch taxpayer was not aware and did not have to be aware that a structured arrangement was present, or it did not profit from the structured arrangement, the anti-hybrid rules do not apply.

Below, we elaborate on imported hybrid mismatches and the documentation requirements.


The following situation is considered an imported hybrid mismatch:

A non-EU parent entity X grants a hybrid loan to its non-EU subsidiary Y, whereby the interest paid by entity Y is deductible, however the interest is not subject to tax or exempted in the hands of X because, for example, it is qualified as exempt participation dividend, because of a difference in qualification of the loan instrument (hybrid loan). This leads to a deduction but no inclusion hybrid mismatch. Entity Y, furthermore, on-lends the loan (non-hybrid) to its Dutch subsidiary Z. Without application of the ATAD2 rules, this would mean that the interest paid by Z is deductible in the Netherlands and it is not effectively taxed anywhere in the structure due to the aforementioned hybrid mismatch between third states X and Y.

In this situation, it needs to be evaluated whether the Dutch implementation of the ATAD2 rules would apply in the hypothetical case where Y would have been a Dutch tax resident. In this example, that would be the case as the loan is a hybrid resulting in a deduction for the payor and not in an inclusion in the taxable base of the payee and they are affiliated. Note that a factual and/or legal connection must exist between the hybrid loan and the non-hybrid loan for these rules to apply.


Dutch taxpayers must notify the tax authorities in their Dutch corporate income tax returns whether the above mentioned rules apply. If they are of the opinion that these rules do not apply, they must include in their administration information from which it is clear that these rules do not apply. In case these rules do apply, the extent of the application must be clear from this information. The following are examples of relevant information:

— a (worldwide) structure overview;
— foreign tax returns/assessments showing the tax treatment of the used financial instruments, hybrid entities or permanent establishments;
— an opinion of a specialist on the foreign tax law;
— an analysis of the used financial instruments, hybrid entities or permanent establishments in the context of the relevant Dutch and foreign legislation; and
— a substantiated calculation of the extent of the applied correction.

Taxpayers are obliged to submit this information upon request of the Dutch tax authorities within a reasonable period, i.e. in general six weeks, but extensions are possible depending on the complexity.

If the taxpayer fails to (in a timely way) provide the requested information, the burden of prove may shift to the taxpayer. The taxpayer must then convincingly demonstrate that these rules do not apply.


The takeaway is that the ATAD2 rules may have a reach that is not apparent at first sight. Every multinational group that operates both inside and outside the European Union may be confronted with the non-deduction or inclusion in their tax base in case of a hybrid mismatch somewhere else in the group.

Even outside of group situations these rules may result in an increase in the administrative burden as the rules apply when the shareholding is 25% or more. Furthermore, it is not clear how to interpret whether taxpayers can absolve themselves from application of these rules in case the tax authorities are of the opinion that there is a structured arrangement.

Furthermore, stringent documentation requirements have been added. The taxpayer also needs to declare whether or not these rules apply to them, which means an increase in the administrative burden for internationally operating groups, as that information must be gathered from elsewhere in the group to a greater extent than before.

During the final days of the discussion of the legislative proposal in the Dutch parliament several motions were put forward urging the Dutch government to pay special attention to taxpayers’ rights in applying these stringent rules, especially regarding the aspects where strict application may result in double taxation. At the time of this alert, the Dutch government has not (yet) responded to these motions. It may be possible that the Dutch government will take these motions into account when issuing decrees that will further implement these new rules.

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