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(d) APPORTIONMENT BETWEEN PARENT ENTERPRISE AND SUBSIDIARIES

99. The present trend of the practice is to determine, as much as possible, the profits made by the subsidiary as if the latter existed independently of the parent company. This has always been done where the parties concerned have maintained separate accounts for the “dummy” and have declared as its profits the full profits of agricultural or mining enterprises. In many cases, however, serious problems have been presented by the fact that the book-keeping of the parent company does not treat the “dummy” as a separate entity, and represents the holding company as the exploiter. Sometimes, from an economic viewpoint the subsidiary enjoys no independent existence, and is, in fact, entirely merged with the parent company.

100. The fiscal authorities are not bound by any settled rule, and if the intention to evade taxation is plain, they have the right to assess the parent company, notwithstanding the representations which the parties concerned may make. Such cases will, however, always remain exceptional, as the authorities are able, in most instances, to respect the legal fiction and still make the necessary corrections in order to arrive at a fair assessment.

101. The word “dummy” has a special significance in N.E.I., resulting from the fact that the agrarian and mining laws forbid companies, organised elsewhere than in the Netherlands or N.E.I., to acquire long lease rights, or mining concessions, or even prospecting licences. Consequently, foreign (not Dutch) companies can only carry on agricultural or mining enterprises in this country through the intermediary of a representative, which, as a rule, is a subsidiary company organised in the Netherlands or in N.E.I. The subsidiary, as a rule, has little capital and holds the long lease titles, etc. The fiscal administration of N.E.I. has always adhered to the point of view that these subsidiary companies are the exploiters of the land or concessions concerned, and are therefore assessable on the income derived from such properties. If companies take an unfair advantage of this viewpoint, it may be necessary to go a step further, and treat part of the income allotted to the holding company as taxable profits. It will then be necessary for the administration to take into account the profits of the holding company in order to arrive at a proper valuation of the profits of the subsidiary.

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