Trailing tax already exists
On 17 October 2025, the Dutch Supreme Court rendered an interesting judgment (HR 2025:1568). In my view, demonstrates a legally correct but undesirable consequence of the “incorporation fiction” laid down in Article 2(5) of the Dutch Corporate Income Tax Act. In effect, this creates an unlimited form of ‘trailing tax’ on income that, by any reasonable standard, does not belong to the Netherlands for tax purposes.
Under the incorporation fiction, Dutch law treats any entity incorporated under Dutch law as a domestic taxpayer for corporate income tax purposes. In practice, this rarely causes major issues. The Netherlands has tax treaties with almost all countries to prevent double taxation when another country also claims residence.
Example
A Dutch BV with its management and a physical retail store in Belgium is resident in both countries: fictitiously in the Netherlands and factually in Belgium. Under the tax treaty with Belgium, the place of effective management is decisive. As a result, Belgium may tax the profits, and the Netherlands may not.
Case
- A BV originally incorporated under Dutch law has relocated to and is established in Malta. The Dutch Tax Authorities do not dispute this.
- The shareholder has emigrated to and resides in France. This is also undisputed.
- The BV earns profits through investments with Swiss banks and through sales commissions paid from Germany.
- Malta taxes these profits but applies a preferential tax regime. These result in a tax burden that is limited by Dutch standards.
- The tax treaty with Malta provides that the place of effective management is decisive in determining which country may levy tax — in this case, Malta. However, the treaty also contains an anti-abuse provision stating that the treaty does not apply at all if a preferential tax regime is used.
- On this basis, the Netherlands sets aside the treaty, claims the BV as a domestic taxpayer under the incorporation fiction, and taxes the profits as well. Even though the BV no longer has any substantive connection with the Netherlands.
Opinion
In my view, the key question is what “abuse” is actually being addressed here. If the shareholder had remained resident in the Netherlands and had artificially established the BV in Malta, the Dutch Tax Authorities would have been justified in intervening, without relying on the incorporation fiction. However, that is not the case here. Upon emigration, the BV is already subject to exit taxation, and the shareholder receives a protective assessment. The Dutch tax claim on profits accrued during the Dutch period is therefore safeguarded.
Conclusion
The BV could have sold its assets at arm’s length to a newly incorporated Maltese limited company. That limited company would then have realised the capital gains and received the sales commissions, over which the Netherlands would no longer have been able to levy tax. What would have remained in the Netherlands would have been a Dutch BV holding either cash or an interest-bearing (taxable) receivable. While not ideal, this would have been a manageable risk. Also, it would not have resulted in an unlimited Dutch taxing right over the transferred assets. At some point, the company could have distributed that cash or receivable in a taxable manner. Allowing it to (partially) settle the protective assessment. In any event, this would have been preferable to the current outcome — years of additional assessments, interest, and double (high) taxation.
When fiscally relocating a BV abroad, it is therefore crucial to be certain that a tax treaty applies which effectively prevents double taxation. Where there is doubt, an alternative structure may be the better solution.
