International

15-05-2017

Landmark rulings on interest deduction and tax penalties

Following several long-awaited decisions in the Credit Suisse cases on 21 April 2017 the Dutch Supreme Court has provided useful guidance to international financing transactions involving Dutch borrowers and lenders.

Situation

During 2005-2008 several Dutch resident group entities of Credit Suisse Bank were involved in certain structured arrangements. In short these arrangements related to the acquisition of taxpayers which had realized profits pre-acquisition in order to deduct intercompany interest from these profits.

Interest deduction

It was ruled that the interest can be disallowed on the basis of the abuse of law (fraus legis) doctrine, but only insofar these profits were actually realized pre-acquisition. This will not have much impact on current practice, as these transactions are no longer effective following legislative changes in 2011. The rulings further clarify that certain targeted anti-base erosion rules effectively do not apply to interest on intercompany debt when the intercompany loans are, on group level, funded by matching and mirrored loans attracted from third parties. This could significantly limit the scope for disallowing interest deductions which could have an impact on current and future intercompany lending transactions.

Penalties

The Supreme Court reaffirmed and clarified its position on administrative penalties in tax cases. No penalties can be imposed on a taxpayer who could objectively reasonably argue (pleitbaar standpunt) its position, even when such arguments were not considered upon the moment filing, but after such moment. The effect of the rulings goes beyond administrative penalties in tax cases, because the Supreme Court expressly ruled that the exception for objectively arguable positions applies in a similar way to criminal prosecution in tax cases. This may well have an impact in other areas of criminal law as well.

 

Key contacts

Cees-Frans Greeven

Managing Partner | Lawyer
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+31 (0)20 333 8390 /+352 (0)2644 0919 21

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