Facilitating tax free cross border restructuring: Opportunities and challenges

Choosing the initial structure: PE or separate legal entity

When starting business activities abroad, companies must decide whether to operate through a permanent establishment (PE) or to incorporate a separate legal entity.

A PE is relatively easy to establish, but it brings significant administrative obligations. While allocating revenue to a PE is generally straightforward, allocating costs can be challenging and gives rise to early transfer pricing considerations.

Incorporating a separate legal entity is often preferred by larger companies or groups with existing international structures. Although incorporation procedures vary by jurisdiction, a company benefits from its own stand alone administration once established.

Regardless of the form chosen, it is essential to ensure that value-added tax (VAT), payroll tax, social security, and corporate or personal income tax obligations are fully understood and properly managed.

Changing the legal form: from PE to BV or the other way around

A PE can be converted into a private limited company (BV) through a business merger, provided (i) the PE constitutes a business or independent part thereof, (ii) the transfer is made in exchange for shares, and (iii) the conditions of Section 14 of the Dutch Corporate Income Tax Act 1969 are met. In such cases, capital gains are deferred and transferred to the BV, and PE losses may, under specific conditions, be transferred.

Conversely, converting a BV into a PE usually triggers taxation on hidden reserves, tax reserves, and goodwill. This may also lead to taxation at shareholder level. Exceptions facilitating a tax free conversion generally do not apply, particularly in cross border cases. A careful assessment of both Dutch and foreign tax consequences is therefore crucial.

Cross border mergers and demergers

The European Union Merger Directive provides for tax neutral cross border mergers and demergers between companies established in different EU member states. In a merger, two companies may combine into a newly incorporated entity, or one of the merging entities may remain while the other ceases to exist. In a demerger, a single entity is split into two legal entities – for example, a German GmbH demerging into an existing GmbH and a newly formed Dutch BV.

Outbound mergers or demergers are subject to Dutch corporate income tax unless the conditions for tax neutrality are met. A key requirement is that the foreign acquiring entity continues to have a PE in the Netherlands after the merger. In inbound cases, the Dutch tax base is preserved, and no tax leakage occurs.

Where a tax neutral merger or demerger applies, loss relief may be transferred but remains business bound under anti abuse provisions.

Anti abuse rules in cross border restructuring

Tax free restructuring facilities cannot be used for the main purpose of avoiding or deferring taxation. For example, converting the Dutch PE of a Belgian entity into a BV shortly before selling the business, solely to benefit from the participation exemption, constitutes abuse.

Dutch law contains a general rule that if shares are transferred within three years following a (cross border) restructuring, abuse is presumed. In its ruling of 27 February 2026, the Dutch Supreme Court held that this presumption is rebuttable if the taxpayer demonstrates valid commercial reasons. This assessment is factual and must be aligned with EU law and the Merger Directive.

Conclusion

Dutch tax law offers extensive possibilities for cross border structuring and restructuring, but these opportunities come with strict conditions and potential anti abuse considerations. A thorough analysis of the tax implications – both in the Netherlands and abroad – is essential to avoid unintended tax consequences. Close cooperation with specialists in the relevant jurisdictions is strongly recommended.

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Since completing her university degree in fiscal economics, Linda Schuurmans has been active in tax advisory practice since 2000. Following the completion of a postgraduate master's degree in European and International Tax Law in 2008, she has primarily focused on international tax law. In addition to her international tax practice, Linda is also active in the domestic tax practice, with a particular emphasis on corporate structuring and estate planning.