When making cross-border investment decisions, Dutch resident entrepreneurs often face the question whether a foreign investment should be set up in the form of a foreign subsidiary (participation) or in the form of a branch (permanent establishment).
Not only Dutch tax considerations play a part in this choice. Also in the country in which the investment takes place, the consequences of investing via a participation or via a permanent establishment may differ. In this issue of Quoted, only the Dutch tax law aspects are discussed. The differences between the two variants have shrunk as a result of the introduction of the so-called “object exemption” for profits from permanent establishments. In many ways, this exemption is similar to the participation exemption for benefits from participations.
However, despite this way of bringing permanent establishments and participations more in line with each other, differences can still be recognised in their treatment under Dutch tax law.
In this Quoted, the following differences are discussed:
- the differences in the conditions for an exemption;
- the differences in calculating the exempt result;
- the differences in loss recognition; and
- the European law aspects of these differences.
Compliments of Loyens & Loeff, a member of the EACCNY