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ARTICLE · 08 JULY 2015

Commercial Reasons Required For Debt Financing, Even In Acquisitions

De Brauw Blackstone Westbroek
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Recent case law illustrates the need for companies to carefully consider the risk of interest deductions being disallowed if they use a related party debt to fund an acquisition through a Dutch holding company.

NetherlandsTax
Paul Sleurink
Paul Sleurink
Mats Cornelisse
Mats Cornelisse
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Recent case law illustrates the need for companies to carefully consider the risk of interest deductions being disallowed if they use a related party debt to fund an acquisition through a Dutch holding company. On 5 June 2015, the Supreme Court rendered a significant decision on the Dutch base erosion rules. These rules seek to disallow interest deductions by a Dutch company where, for tax reasons, it borrows from a related party in connection with a capital contribution, dividend distribution or acquisition. The Supreme Court rejected specific arguments supporting an interest deduction in this type of situation. It ruled that even in the case of an acquisition outside the group, the borrowing from the related party should be based mainly on commercial considerations.

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