Company A had acquired the business (assets and liabilities) of another company, through an Acquisition B.V.
Company A provided a loan of EUR 300,000 to Acquisition B.V. in 2008. The Acquisition B.V. failed to perform well and went bankrupt in 2011. Company A claimed a write-down loss on the loan in its corporate income tax return.
The Tax Administration stated that this was an extreme default risk loan and did not accept the loss. According to Dutch case law the main characteristic of an EDR loan is that an arm’s length interest rate cannot be found – the shareholder grants the loan under such circumstances that it is clear from the outset that it cannot be repaid and the shareholder does not have business
interest, other than in its capacity as shareholder, to grant the loan. The Arnhem-Leeuwarden Court of Appeal disagreed with the Tax Administration.
The Supreme Court stated that “special circumstance” between a creditor and a debtor occurs if a business relationship is involved. One that would have been of sufficient weight to the creditor to provide a loan under the same conditions and circumstances and to accept the resulting bad debt risk, even without an intercompany relationship.
The Supreme Court argued that the Court of Appeal had provided insufficient grounds for there not being a “special circumstance” in this case.
Another issue in this case was the fact that the debtor of the loan was not a subsidiary of company A. Instead, it was a sister company (80% shareholding). On this issue the Supreme Court clearly stated that “parallel” deduction of a write-down loss in respect of an extreme default risk loan is not possible.
Cassatie Belastingrecht 141016