Netherlands: Acquisition debt: the taxman keeps on challenging

In our article in last year's International Tax Review – Mergers & Acquisitions, we highlighted the Dutch tax authorities' increasing interest in how taxpayers organise their related-party debt on acquisitions of Dutch taxpaying entities. As we explained, the tax authorities have been seeking to apply rules disallowing interest on related party debt used for the acquisition of new subsidiaries or investments in existing subsidiaries. Our article also covered the Netherlands' more generic thin capitalisation rule. In addition, we drew attention to a relatively new development whereby the Dutch tax authorities seek to challenge certain debt financing not caught by the above specific measures by extending the general transfer pricing principles embedded in Dutch tax law.

Over the past year, the means available to the Dutch tax authorities for challenging related party debt have changed significantly. In late November 2011, the Dutch Supreme Court issued a number of rulings that in our view...