Hybrid Mismatches CV-BV Structure

26-02-2017 - Bridge Consulting

A newly adopted proposed directive should neutralize hybrid mismatches with third countries. This neutralization can sometimes turn out to be very annoying for the Dutch business climate and domestic employment. To the left or to the right, this means the end of the popular CV / BV structure used by many American multinationals in the Netherlands. The latter says Daniël Smit, professor by special appointment at Tilburg University and tax specialist at EY.


On 21 February 2017, an agreement was reached in the Ecofin Council on the amendment of the anti-tax avoidance directive (ATAD) for addressing hybrid mismatch structures. The amended directive, also known as ATAD2, regulates the neutralization of hybrid mismatches between EU member states and countries outside the EU, or third countries. "In particular, hybrid mismatches are caused by a difference in the qualification of an entity and mismatches associated with hybrid financial instruments," Smit explains. "Mismatches can lead to 'double deduction' (one payment multiple deductible), 'deduction / no inclusion' (deductibility without corresponding charge) or 'no inclusion' (profit is not taxed at all) .The proposed directive now prescribes for which country the effects hybridization of a hybrid mismatch, which may be the country granting deduction, by not allowing the deduction of a payment, or the receiving country, by imposing tax. "

Without delay

An agreement has also been reached on the effective date. EU Member States must have implemented the rules for hybrid mismatches by 1 January 2020. That is a year longer than the original plan, but a lot less long than the implementation date of January 1, 2024 that the Netherlands initially had in mind. The aim of a longer transition period was to allow foreign companies with real domestic economic activities sufficient time to adapt to the directive, to allow third countries (including America) to change their legislation, and because of the negative impact of the proposed directive for the Netherlands. The Dutch business climate is becoming less attractive by the directive, in particular for US multinationals, and can therefore lead to substantial losses in investments and employment. In December, the Senate emphasized the negative effects of ATAD2, but Minister Dijsselbloem of Finance was, under pressure from the House of Representatives - who with a recent motion requested the government to agree to the proposed implementation date in a European context. The implementation date of 1 January 2020 is a fact. A later date is however possible for specific structures, so-called 'reverse hybrids'. Member States may use an effective date of 1 January 2022, but Minister Dijsselbloem has already hinted that this is not possible and that is striking. A 'reverse hybrid' that is important for the Netherlands is the CV / BV structure that is popular with American multinationals.

End CV/BV structure

"With a CV / BV structure there is a mismatch with a hybrid entity", according to Smit, "which means that profit falls between the ship and the ship." In the US, the US multinational can use the 'check-the-box' scheme, choose to classify the company as non-transparent, which means that royalty payments from the Netherlands and the US are not included in the levy, although there is a tax claim, but this can be postponed for a long time. profit is not, because this is reserved for the US With ATAD2 this 'deduction / no inclusion' is past January 1, 2020. If profits are not taxed in the head office of the head office (America), then the Netherlands must according to the main rule tax by deducting the royalty to be refused.Also the entire European hybrid mismatch discussion can be quickly outdated if US President Trump in the fiscal field his election promise of 'America first' goes to redeem. Then, it is expected that in the future, an additional tax will be levied in the US if American companies have to reclaim their accumulated and untaxed profits. The fiscal fate of the CV / BV structure in the Netherlands is sealed to the left or to the right. "