Upon the implementation of ATAD2, measures were introduced to address undesired fiscal effects of hybrid mismatches. One of these measures is an extensive documentation obligation per 1 January 2020, that applies to any Dutch entity that is part of an international structure. Taxpayers must include data in their administration, which shows whether or not the hybrid mismatch measure is applicable.
Documentation obligation: what kind of data does this concern?
As of the 2020 taxable year, you will need to assess whether or not hybrid mismatch measures apply, in order to file a correct corporate income tax return. To this end, you must be in possession of data regarding the fiscal treatment of cross-border transactions. You are also obligated to keep this information in your administration. Examples of data that may show the applicability of the hybrid mismatch measures, may include:
a diagram of the (worldwide) structure;
an assessment of the financial instruments, hybrid entities or permanent establishments used, in the context of the relevant foreign and domestic legislation;
foreign tax returns and/or assessments insofar as they show the fiscal treatment of the financial instruments, hybrid entities or permanent establishments used;
legal opinions by experts in the field of the applicable foreign tax law.
If a hybrid mismatch measure applies, the above may be supplemented by, for instance, a substantiated calculation of the size of the correction applied as a result of that hybrid mismatch measure.
ATAD2 introduced several measures to combat hybrid mismatches involving entities, permanent establishments, and financial instruments and in situations involving reverse hybrid entities.
Term for providing the data
If the Dutch Tax Authorities request the data, you are offered a reasonable amount of time to provide these documents. The starting point is that you should have at least six weeks to provide the data, but this term depends on the complexity of the transaction(s) at hand. In situations concerning more complicated transactions, the term may be extended in consultation with the Dutch Tax Authorities.
Penalties for not fulfilling documentation obligation
If you do not (fully) comply with the documentation obligation, and in addition to this, the tax inspector suspects that the hybrid mismatch measure applies, you may face an increased burden of proof. This may for example be the case if the documents cannot be provided (upon request), or if the application of the hybrid mismatch measure cannot be inferred (sufficiently) from the documents provided. This increased burden of proof makes it more difficult, and therefore more costly, to prove that the hybrid mismatch measure does not apply.
We can assist you in complying with your ATAD2 obligations
Please bear in mind that these rules have already come into force, and may apply in more cases than you might think. If you are not sure whether you are (fully) compliant with the ATAD2 documentation obligations, our advisors would be happy to perform an ATAD2 impact analysis for your company, and to help you comply with the documentation obligation.
This content was published more than six months ago. Because legislation and regulation is constantly evolving, we recommend that you contact your Baker Tilly consultant to find out whether this information is still current and has consequences (or offers opportunities) for your situation. Your consultant will be happy to discuss the latest state of affairs with you.
