Netherlands vs “X Beheer B.V”, May 2008, (Hoge Raad) Dutch Supreme Court, Case no. 43849, VN 2008/23.14

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“X Beheer B.V.” was founded in 1992 and has been part of the A-group as a holding company ever since. The shares of “X Beheer B.V.” were transferred against the issue of depositary receipts to a trust office foundation. The depository receipt holders of “X Beheer B.V.” were also holders of the depository receipts of shares of F B.V. (hereinafter: F), formerly the holding company of the A-group.

In 1995, a reorganisation took place as a result of the wish of a number of depositary receipt holders to dispose of their interests in F and “X Beheer B.V.”. However, the remaining group of depositary receipt holders did not have the financial means to buy out those depositary receipt holders, after which it was decided to establish the (take-over) holding company G Holding B.V. (hereinafter: Holding). The intention was that G Holding B.V. would gradually buy up packages of depositary receipts from depositary receipt holders who wished to sell.

After four transactions, at the end of 1997 G Holding B.V. held 278 depositary receipts for shares in “X Beheer B.V.” (23.16%) and 38 depositary receipts for shares in F B.V. (7.3%). The purchases of these depositary receipts involved a total amount of Fl. 10,235,760. The purchase price was fully financed by a loan from “X Beheer B.V.” to G Holding B.V. It was intended that G Holding B.V., which had no other assets or financing, would repay the loan from “X Beheer B.V.” from a dividend stream to be generated from “X Beheer B.V.” and F B.V.

The loan from “X Beheer B.V.” to G Holding B.V. was classified by “X Beheer B.V.” as a current account, to which the interest due was credited annually. The interest rate was 4.7% in 1996, 4.96% in 1997, 5.25% in 1998 and 5.63% in 2000. The balance of this loan rose from Fl. 4,526,692 at the end of 1995, through Fl. 10,717,470 at the end of 1997 and Fl. 12,509,550 at the end of 1999 to Fl. 13,213,837 at the end of 2000. During the term, a total amount of NLG 115,030 (in three different tranches) was repaid on the loan, which amount came from dividends paid by F B.V.

A written loan agreement was never drawn up and a repayment schedule for the loan was never established. Collateral for the loan was neither requested nor provided.

A Group’s results had been under pressure since the loan was taken out, partly due to changed market conditions, different production techniques and increasing competition. Losses were incurred in all financial years from 1996 to 2000. The total loss in these five years (commercial) amounted to Fl. 24,619,216. “X Beheer B.V.”‘s equity was negative since 1997. Partly as a result of these losses and this equity position, no dividend was ever paid from the A-group to G Holding B.V.

In February 2001 “X Beheer B.V.” transferred its claim on G Holding B.V., with a nominal value of NLG 13,198,000, to F for the fair value of NLG 6,205,400. The G Holding B.V. shares were also sold for Fl.

In “X Beheer B.V.”s corporation tax return for 2000, an additional provision of NLG 2,000,000 was made in respect of the loan to G Holding B.V., after a provision of NLG 5,000,000 had already been made in 1999.

The tax authorities did not accept the 2,000,000 write off on the loan and disallowed the deduction.

A complaint was filed by “X Beheer B.V.” which was later dismissed by the Court of Appeal.

An appeal was then filed with the Supreme Court.

Judgement of the Supreme Court

The Supreme Court upheld the decision of the Court of Appeal and dismissed the appeal filed by “X Beheer B.V.”.

Excerpt

“3.5. The Court’s opinion that an independent third party would not have taken out the money loan under the circumstances outlined by the Court is of a factual nature, and not incomprehensible in the light of the circumstances taken into account by the Court – in particular the fact that no security was requested and provided – and in view of the circumstance that Holding, which did not have any other assets or any other financing, would have had to repay the loan from the interested party from a dividend flow to be generated from the interested party, among others. It follows from the Court’s judgment that – barring special circumstances – it must be assumed that the interested party accepted the full debtor risk with the intention of serving the interest of Holding in its capacity as shareholder. The mere fact that Holding was not a majority shareholder of the interested party does not alter this. Neither the Court’s ruling nor the documents in the case reveal that any facts or circumstances have been established or put forward to justify the conclusion that special circumstances as referred to above apply in this case.
3.6. It follows from the above that the Court of Appeal has correctly concluded that the interested party may not charge the Dfl 2,000,000 write-down on its loan to Holding to its result in the year under review. The complaints directed against the opinion of the Court of Appeal mentioned above in 3.3 and its conclusion cannot therefore lead to cassation.
3.7. It follows from the above that the remaining complaints directed against the opinion of the Court of Appeal – and the further grounds given – that the provision of money by the interested party to Holding should not be regarded as a business loan, fail for lack of interest.”

 
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ECLI_NL_HR_2008_BD1108

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