Consolidation

What does consolidation mean?

Combining the figures of parent and subsidiary companies into one set of consolidated annual accounts, eliminating intra-group items (consolidatie, art. 2:405 DCC).

In consolidation, parent and subsidiary are shown as one economic unit. Intra-group receivables, liabilities, turnover and profit on transactions are eliminated. Statutory exemptions may apply, but require a separate test.

How does it work?

The legal entity at the head of a group consolidates (art. 2:406(1) DCC), and so does an intermediate holding company for its own part of the group (paragraph 2). Under the full consolidation method you include assets, liabilities, income and expenses at 100%, even with a smaller interest; the part belonging to other shareholders is shown separately as the share of third parties (RJ 217).

Then what the group does with itself drops out: the participating interest against the subsidiary's equity, intra-group receivables and liabilities, intra-group turnover and costs, and profit on inventory that has not yet left the group. A small group is exempt: if the whole stays below the limits of article 396 and the general meeting does not object within six months after the start of the financial year, consolidation may be omitted (art. 2:407(2) DCC). An intermediate holding company is exempt if its figures are included in the consolidated annual accounts of a larger whole and the other conditions of art. 2:408(1) DCC are met.

Example

Holding BV owns 100% of Werk BV, valued at € 300.000 in the single-entity balance sheet. Holding: other assets € 200.000, equity € 450.000, debt to Werk BV € 50.000. Werk BV: assets € 700.000, including the € 50.000 receivable from the holding, equity € 300.000 and debts to third parties € 400.000. Adding up gives € 1.200.000 of assets. Eliminations: participating interest € 300.000 against Werk BV's equity, and receivable against debt € 50.000. Consolidated: assets € 850.000, equity € 450.000, debts € 400.000.

In the annual accounts

Consolidated balance sheet, P&L and notes for the groups concerned.

Difference from a fiscal unity

Consolidation is reporting under Book 2 DCC. The fiscal unity (fiscale eenheid) is an arrangement in the tax law under which, on request, parent and subsidiary count as one taxpayer for corporate income tax. The thresholds differ: consolidation depends on control, the fiscal unity on at least 95% of the shares, voting rights and profit rights (art. 15(1) Wet Vpb 1969).

Common mistakes

• Adding up balances without eliminations
• Including a participating interest twice

What should you watch for?

• Reconcile intra-group balances before the year-end closing. Otherwise a difference between the receivable at one company and the debt at the other remains as a balancing item in the group balance sheet.
• The size class is tested at group level (art. 2:396(2) DCC). A holding company with a medium-sized operating company is therefore not small itself, unless it applies article 408.
• Check whether the exemption for a small group applies before you start; see Does a holding company have to consolidate?

Legal basis and source

art. 2:406–408 DCC

• Dutch Civil Code Book 2, article 406
• Dutch Civil Code Book 2, article 407
• Dutch Civil Code Book 2, article 408
• Dutch Corporate Income Tax Act 1969 (Wet op de vennootschapsbelasting 1969), article 15

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