Tag: Extreme Default Risk loan (EDR)

Netherlands vs Corp, October 2016, Supreme Court 16/01370

Netherlands vs Corp, October 2016, Supreme Court 16/01370

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 ... Continue to full case
Netherlands vs Corp, 2011, Dutch Supreme Court, Case nr. 08/05323 (10/05161, 10/04588)

Netherlands vs Corp, 2011, Dutch Supreme Court, Case nr. 08/05323 (10/05161, 10/04588)

In this case, the Dutch Supreme Court further outlined the Dutch perspective on the distinction between debt and equity in its already infamous judgments on the so-called extreme default risk loan (EDR loan) L sold a securities portfolio to B for EUR 5.3 million against B’s acknowledgement of debt to L for the same amount. The debt was then converted into a 10 year loan with  an interest rate of 5% and a pledge on the portfolio. Both L and B were then moved to the Netherlands Antilles. Later on L deducted a EUR 1.2 mill. loss on the loan to B due to a decrease in value of the securities portfolio. The Dutch Tax Authorities disallowed the deduction based on the argument, that the loan was not a business motivated loan. The Dutch Supreme Court ruled that in principle civil law arrangement is decisive in regard to taxation. However there are exceptions in which a civil law loan arrangement can be disregarded ... Continue to full case