Supreme Court decision in Dutch anti-abuse case
On January 16, 2026, the Dutch Supreme Court (Supreme Court) ruled in a long-running case concerning the applicability of the Dutch interest deduction limitation anti-profit shifting regime. This ruling relates to the CJEU’s ruling in case C-585/22 – see E-News Issue 201.
The plaintiff, a Dutch subsidiary (Company X) of a Belgian entity (Company A), acquired shares of an unrelated Dutch entity (Company F), thereby becoming its majority shareholder. The acquisition was financed by a loan granted by another group company (Company C), which was tax resident in Belgium and had received the funds shortly before, through a capital injection from Company A. Following the acquisition, the two Dutch companies established a fiscal unity. A dispute arose between Company X and the Dutch tax authorities over the deductibility, for Dutch corporate income tax purposes, of interest expenses related to the intra-group loan.
Under the provisions of the Dutch Tax Code applicable at that time (i.e., Section 10a of the Dutch Corporate Income Tax Act), the deductibility of interest expenses incurred with respect to loans contracted from related parties – particularly for internal reorganizations or external acquisitions, was restricted (subject to certain conditions). Two exceptions applied:
- a rebuttal provision allowed taxpayers to deduct the intra-group interest if they could demonstrate that the debt and the related transactions were primarily business-motivated; or
- if the taxpayer could demonstrate that the ‘compensatory tax test’ has been met. Compensatory tax is considered to exist if the creditor is subject to corporate income tax or income tax on the loan interest, with that tax being regarded as fair under Dutch standards. A tax is deemed fair if it results in a tax rate of at least 10 percent on profits calculated in accordance with Dutch standards.
Under settled case-law in the Netherlands, the interest deductibility restriction applied regardless of whether the interest rate was set at a level which would have been agreed between independent parties on an arm’s length basis. The dispute reached the Dutch Supreme which tentatively agreed with the position of the Court of Appeal that the rule under dispute was justified and proportionate in light of the aims of combating tax avoidance and preserving the Dutch tax base. However, the Supreme Court expressed doubts as to whether this conclusion was in line with the CJEU’s decision in case C-484/19, concerning the Swedish interest deduction limitation rules3. Consequently, the Dutch Supreme Court referred the case to the CJEU to clarify whether the rule under dispute was compatible with EU law.
The CJEU found that, whilst the Dutch interest limitation rule represents a de facto restriction on the freedom of establishment, this restriction is justified as it aims to combat tax fraud and evasion. The CJEU further held that the restriction does not go further than necessary to achieve its purpose, on the grounds that: i) it only targets wholly artificial arrangements, and ii) the consequences of a transaction being characterized as such are not excessive. In light of the above, the CJEU concluded that legislation such as that in the case under dispute is permissible under EU law4.
Following the CJEU’s ruling, the plaintiff argued that the evidentiary standard for demonstrating that a transaction is “primarily business-motivated” under Section 10a is more stringent than what EU law requires. According to the plaintiff, EU law would merely require that the transaction show ‘some connection to economic reality’. The Supreme Court rejected this argument, holding that a proper interpretation of EU law requires it to be convincingly established that tax considerations were not the decisive reason for entering into the transaction. The existence of (even more compelling) commercial considerations therefore does not preclude a finding that a transaction forms part of a wholly artificial arrangement. In the Supreme Court’s view, the CJEU’s wording should not be interpreted narrowly in this respect; the decisive question is whether tax motives prevailed, irrespective of whether commercial considerations were also present.
The Supreme Court ruled that tax motives were the basis for providing the group loan via the group financing entity and therefore the interest was non-deductible pursuant to Section 10a. The Supreme Court also clarified that, in terms of the business-motivation test, the rebuttal provision in Section 10a CITA 1969 is in line with EU law.
For more details, please refer to a tax alert prepared by KPMG in the Netherlands.
Dutch Supreme Court holds that rate of interest on tax due for corporate income tax must be reduced
On January 16, 2026, the Dutch Supreme Court (Supreme Court) ruled in a case concerning the interest on corporate income tax due in the Netherlands. The plaintiff was assisted by KPMG in the Netherlands.
Interest on tax due becomes payable when tax is owed and a provisional tax assessment was not requested on time, a tax return was not filed on time, or a tax return that was filed on time is subsequently adjusted. Until January 1, 2024, the interest on tax due for corporate income tax purposes was set at 8 percent of the tax payable. This relatively high rate resulted from its linkage to the statutory interest rate for commercial transactions. As of January 1, 2024, the interest on tax due is no longer linked to the statutory interest rate for commercial transactions but is instead tied to the European Central Bank interest rate.
The Supreme Court ruled that the rate of interest on tax due for corporate income tax payable in 2022 and 2023 is contrary to the principle of proportionality and must be reduced. The Supreme Court also held that charging corporate income taxpayers a higher rate cannot be justified and that the rate of interest on tax due must be aligned with the lower rate applicable to other taxes. The Court also ruled that this lower rate of interest on tax due is proportionate.
For more details, please refer to a tax alert prepared by KPMG in the Netherlands.