NETHERLANDS TRENDS AND DEVELOPMENTS Contributed by: Jan-Willem Kunen, Natalie Reypens and Gijs van Koeveringe, Loyens & Loeff
mutual agreement procedure or entering into a (bilateral) APA can be considered by taxpayers in the case of (potential) discussions on business restructurings. Shareholder loan case On 7 May 2024, the Court of Appeal ruled on a case involving the deductibility of a significant amount of interest payable on shareholder loans provided to a Dutch taxpayer that had acquired real estate. In this case, the Court of Appeal ruled that it should first be assessed whether the loans should be considered “non-businesslike” , which was the case according to the Court of Appeal. According to an earlier Supreme Court case, the interest on non-businesslike loans should be set at the interest that the taxpayer would be due if it were to borrow from a third party with a guar - antee from the shareholders under otherwise identical conditions and circumstances – what is known as the “Deemed Guarantee Approach” ( borgstellingsanalogie ). The Court of Appeal ruled that in establishing whether a loan is non-businesslike, the con - tractually agreed upon terms and conditions are decisive. Subsequently, the Court of Appeal ruled that the tax inspector – on which the bur - den of proof that the loan should be considered non-businesslike lay – was able to convincingly argue that the loan was non-businesslike. This was because: • from the benchmarking analyses included in a first transfer pricing report, it followed that a third party would not have been willing to provide a loan to the Dutch company against similar conditions as the shareholder loans; and • the contents of a second transfer pricing report could not be deemed to be prepared in accordance with the at arm’s length principle.
Furthermore, the DTA and the Court of Appeal referred to the statements brought forward by the taxpayer, where the taxpayer argued that third- party financing would only be possible with more rigid conditions in respect of, for example, the loan-to-cost ratio, securities, maturity, and inclu - sion of a loan-to-value covenant. Ultimately, the Court of Appeal therefore ruled that the share - holder loans constituted non-businesslike loans, and that the interest should be set at the interest rate in accordance with the Deemed Guarantee Approach. The remaining interest was ruled to be non-deductible and was deemed to consti - tute a dividend to the shareholders. From the case, it follows that it is crucial that a Dutch taxpayer can provide evidence of the fact that it would be able to obtain third-party financing under similar conditions to those that apply to shareholder loans. Furthermore, proper attention should be given to the terms and con - ditions of shareholder loans that are laid down in intercompany loan agreements. However, the relevance of this court ruling for Dutch taxpayers that have entered into real estate transactions in respect of future years may be rather limited, taking into account the additional restrictions for deductibility of interest under the earnings stripping rule. Moreover, the interest applicable to non-businesslike loans (ie, equal to the inter - est rate as set under the Deemed Guarantee Approach) may already be relatively high due to increased market interest rates. The deci - sion may nonetheless still be relevant for Dutch dividend withholding tax purposes, because the difference between the at arm’s length rate and the applied interest rate may be classified as a (deemed) dividend. Dutch Implementation of Amount B Amount B of Pillar One is the optional simplified and streamlined approach (the “S&S Approach” )
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