Policy document of Dutch tax authorities on W&I insurance

A warranty and indemnity (W&I) insurance is a mechanism used more often in the Netherlands M&A market to cover a seller’s liability in the case of a breach of warranties in a M&A transaction. Set aside if specific tax risks may be insurable and under which conditions, also the Dutch tax authorities (DTA) have taken an interest in understanding the Dutch tax consequences, in particular relating to the application of the participation exemption in case of a pay out under an insurance policy and with respect to the deductibility of the insurance premiums.

Following a request under the Government Information (Public Access) Act a policy document of the DTA has been disclosed on 18 October 2022.

The policy document was prepared by an internal expert group of the DTA and addresses how W&I premiums and pay outs should be treated under the application of the Dutch participation exemption, more specifically the limitation of deduction rules for acquisition- and sales expenses. It confirms that W&I insurance premiums are regarded as non-deductible acquisition costs or sales costs of a participation. A pay out under a W&I Insurance – regardless if the insurance has been taken by the buyer or the seller – may be exempt from corporate income tax under the application of the Dutch participation exemption.

Although the policy document only expresses the views of the DTA it provides useful clarifications, but also leaves several questions unanswered. 

Key contacts

Cees-Frans Greeven

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Peter van Dijk

Partner | Lawyer and Tax Lawyer
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IJsbrand Uljée

Senior Associate | Tax advisor
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