For Dutch corporate income tax purposes, costs related to the acquisition or disposal of shares that are covered by the participation exemption are non-deductible.
The Dutch Supreme Court (Hoge Raad) on 7 December 218 issued a judgment in a case specifically concerning the sale of a participation. The judgment provides:
These guidelines are of major importance to all taxpayers. To a certain extent, the guidelines deviate from the approach that, until this judgment, was generally considered standard practice. As such, the judgment may also affect tax years that are still under consideration by the tax authorities.
According to the Supreme Court, the costs incurred are to be classified as costs related to the acquisition or disposal of participations, if these costs would not have been incurred by the taxpayer had it not entered into the process of acquiring or disposing of a participation. The Supreme Court noted that “costs” includes both external and internal costs. As long as the acquisition or disposal process has not been completed, the costs incurred must be capitalized in the tax balance sheet.
Once the acquisition process is completed, the following rules apply:
With respect to a disposal process the following rules apply:
The guidelines provided by the Dutch Supreme Court deviate from what is considered standard practice. Consequently, the judgment is also likely to affect tax years for which tax returns still have to be filed or that are still under consideration by the tax authorities. In light of the Supreme Court’s judgment, taxpayers need to re-examine any position taken in respect of costs related to the acquisition or disposal of participations in years that are still pending and to examine how the Supreme Court’s guidelines may affect their positions taken in this respect with close attention focused on internal costs.
Read a December 2018 report prepared by the KPMG member firm in the Netherlands
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