X bv is part of the worldwide X group, a financial service provider listed on the US stock exchange. At issue is deductibility of interest payments by X bv on a € 482 million loan granted by the parent company, US Inc.
In 2010 the original loan between X bv and US Inc. was converted into two loans of € 191 million and € 291 million granted by a Luxembourg finance company in the X group, to two jointly taxed subsidiaries of X bv.
According to the Dutch Tax Authorities, the interest payments on these loans falls under the provisions in Dutch art. 10a of the VPB Act 1969 whereby interest deductions are restricted.
The Court of appeal disagreed and ruled in favor of X bv. This decision was appealed to the Supreme Court by the tax authorities.
In a preliminary ruling, the Advocate General advises the Supreme Court to dismiss the appeal. According to the Advocate General, X bv is entitled to the interest deduction. The conditions of the loans are at arm’s length. Taxpayers are free in their choice of financing their participations, including choosing financing arrangements based on tax reasons. The loans have not been taken out on the basis of non-business (shareholder) motives. Nor is it important that the interest deducted in the Netherlands is also deducted in the US and France (under the Dutch provisions applicable in the years of the disputed transactions).