KPMGDate: 08/05/2013

KPMGContent:

On May 2, 2013, the European Commission (EC) asked the Netherlands to end the exemption from corporate income tax for public sector companies. According to the EC, public sector companies carrying out economic activities in competition with private businesses should, just like those businesses, be subject to tax. Otherwise, they have a competitive advantage.

Direct and indirect public sector companies
In principle, the economic activities carried out by public sector companies are tax exempt. This applies to companies that are part of a government agency (direct public sector companies) as well as to companies operated as an independent entity, such as a public limited company (NV), a private limited company (BV), a foundation or an association (indirect public sector companies). Exceptions apply to certain economic activities, such as agricultural and mining activities and to certain indirect public sector companies, such as Schiphol and the Staatsloterij (national lottery). However, according to the EC, these exceptions do not go far enough. Numerous economic activities carried out by government agencies and indirect public sector companies remain exempt, despite the fact that they compete with private businesses in the Netherlands and in the EU’s internal market, e.g. the Port of Rotterdam Authority.

The EC has proposed the following solutions:

·         abolishing the exemption from corporate income tax for both direct and indirect public sector companies;

·         only abolishing the exemption for indirect public sector companies, and transferring all the economic activities currently carried out by government agencies to indirect public sector companies.

The Netherlands has one month to inform the EC if it agrees with these proposals. If not, the EC will open a formal state aid investigation. The government’s position is actually not totally different to that of the EC. In May 2012, the Deputy Minister of Finance, Mr. Weekers, informed the Lower House that he supported a more inclusive taxation of public sector companies in order to correct the competitive advantage they enjoy. He prefers the indirect public sector model, whereby the exemption is only abolished for indirect public sector companies and the economic activities carried out by direct public sector companies are transferred to indirect public sector companies.