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The limits to tax planning, minimizing taxes
and corporate social responsibility
Author : Ms. N.I. Laclé BEc

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The limits to tax planning, minimizing taxes
and corporate social responsibility
“Sub theme 2: Anti-base erosion rules”
Author : Ms. N.I. Laclé BEc

Place : Tilburg, the Netherlands 2009
Coach : Drs. P.J.J.M. Peeters
Preface
During the EUCOTAX project, with its peek in Barcelona, I have had the help of
wonderful people along the way.
For instance my sister C. Laclé, who’s white where I’m black, but for that same reason
always seems to know how to keep my feet on the ground;
Mrs. E. Marquez who eventhough has been far away, was so close;
Mr. K. Augustin who loves me uncondicionally, but also has this trust in me which will
always keep me going;
Mr. M. Morales who keeps me smiling;
Mr. R. Pieters who showed me there is always light at the end of the tunnel;
Mr. W. Asberg who helped me keep my back straight; and
Mrs. S. Dusarduijn who has been there for me and managed somehow to keep on giving
me this little push I needed in order to enjoy the chances life gave me.
I thank you all for your support and love throughout this college year!
Also the help of Ms. F. Davits and Mr. P.J.J.M. Peeters is mentionable; their feedback
and help along the way have been a great help to my success!
I dedicate this thesis to my grandparents Marquez, who have been with me visibly and
invisibly: danki pa tei!
Tilburg, June 23rd, 2009
-------------------------
Ms. N.I. Laclé BEc
"The recent rulings by the European Court of Justice in this field clearly
show that Member States need to urgently carry out a critical review of
their existing anti-abuse rules. I understand that Member States need to
ensure that their tax bases are not unduly eroded because of abusive
and overtly aggressive tax planning schemes but we cannot tolerate
disproportionate obstacles to cross-border activity within the EU.”1
1
László Kovács, Commissioner responsible for Taxation and Customs Union, EC, 10th of December 2007, nr. IP/07/1878
Table of content
Page
Chapter 1: Introduction 1
Chapter 2: General 2
2.1. Benchmarks of the research 2
2.2. The anti-base erosion rules under national tax law 4
2.3. EC-law 5
Chapter 3: The Netherlands’ system – limitation of interest deduction 8

3.1. The (correct) classification of funds under the CITA 8
3.2. Prevention of (excessive) interest deduction 9
3.2.1. Article 10a CITA 9
3.2.2. Article 10b CITA 12
3.3. Thin cap regulation - article 10d CITA 12
3.4. The limitation of interest deduction rules in other systems 14
3.5. Interim conclusion 21
Chapter 4: The Netherlands’ system – exit taxes 24

4.1. Personal Income Tax Act: preserving assessment (art. 2.8(2)) 24
4.1.1. Pensions (in case of emigration): Article 3.83(1) 25
4.1.2. Emigration of the large stockholder: Article 4.16(1)(h) 25
4.2. Exit taxes: final payment 26
4.2.1. Article 3.60 PITA/ 15c CITA: in case of emigration 26
4.2.2. Article 3.61 PITA/15d CITA: in case of ceasing the business 27
4.3. Exit taxes and other tax systems 29
4.4. Interim conclusion 35
Chapter 5: Conclusions and recommendations 43
Enclosure 44
Reading list 47
List of case law 53

Chapter 1: Introduction
As participant of the EUXOTAX Wintercourse project 2009 (Barcelona), it is required to
write a thesis on the subject provided by the project.
Due to the fact that the main theme to this year’s project was “The limitation of tax
planning, minimizing taxes and corporate social responsibility”, this research is about a
combination of national anti-base erosion rules and the main theme. Therefore the
research in this thesis, based on the questionnaire of the EUCOTAX Wintercourse 2009
project, will focus on finding an answer on whether the role and position of the (most
common) anti-base erosion rules, currently present in the Netherlands, should be
adjusted in the context of the limits to tax planning, minimizing taxes and corporate
social responsibility, taking European Community (case) law into consideration.
This thesis will not only include national law, but will also include EC-law as well as
comparing the national rules (in some cases) to the tax systems of the other participating
countries of the EUCOTAX Wintercourse project.2
The second chapter discusses the benchmarks of the thesis.This chapter also focuses
on more general information which among others expected changes in the legislation will
be discussed. Also a brief introduction to EC-law and the process the European Court of
Justice (ECJ) applies will be described in this chapter. Chapter three will describe the
limitation on excessive interest deduction rules, including the thin cap rule. These rules
will be described briefly with regard to when they apply, how they apply as well as what
the State Secretary of Finance states of the compatibility of these rules with EC-law.
Finally, this chapter will conclude with a short summary of the research on these rules.
Exit taxation is discussed in chapter four with the same set up as chapter three. Chapter
five will shortly discuss other anti-base erosion rules as present in the Dutch Personal
Income Tax Act (PITA) and the Corporate Income Tax Act (CITA). Final conclusions and
recommendations will be given in chapter six.
2
These countries are: Austria, Belgium, France, Germany, Hungary, Italy, Spain, Sweden, the United States of America.
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Chapter 2: In general
This chapter describes the benchmarks of this research. The first one is tax planning.
Tax planning will be discussed in combination with minimizing taxes; and the other
benchmark, corporate social responsibility, will be discussed afterwards. This chapter
will narrow down the definition and/or description of the benchmarks. This chapter
further focuses on the legislative side of the anti-base erosion rules in the Netherlands.
Examined will therefore be the intent of these rules in the perspective of undesired tax
planning as well as what (expected) national legislative changes are. Finally, to finalize
the benchmarks, some EC-(case) law will be discussed in this chapter.
2.1. BENCHMARKS OF THE RESEARCH
TAX PLANNING/ MINIMIZING TAXES
Everyone has idea what is meant with the term “tax planning”. But when asked to
actually explain tax planning, it is very hard to create a universally accepted description.
Research in literature shows that the following opinions on tax planning.
The IBFD ‘International Tax Glossary’3 defines tax planning as an arrangement of a
person’s business and/or private affairs in order to minimize tax liability where tax liability
can be interpreted as paying taxes.
Kessler and Eicke state that tax planning serves two purposes. The first is to eliminate
double taxation in an international business context and the second is to minimize the
overall tax liability of a company or a group of companies, and in turn applied to
maximize its profits.4 According to them tax planning is an inherent part of major
business decision making.5 In their article Kessler and Eicke make a distinction between
legal and illegal actions which reduce tax liabilities, where a legal action is tax planning.
The elements of tax planning are the choice between tax incentives and different tax
reliefs as well as tax benefits deriving from transactions which are business driven.
Consequences of tax planning are accepted by governments, by providing a ‘safe
haven’ based on the law or by doing nothing at all.6
Merks finds that the borderline between unacceptable tax avoidance and acceptable
tax planning is far from clear since the vast majority of countries recognize the right of
the taxpayer to arrange his affairs in a way which attracts the minimum tax liability.7 He
therefore believes that tax planning comprises actions by a taxpayer to reduce a tax
burden that does not constitute criminal offence.8
Vanistendael believes that acceptable tax planning is the perfectly legal behaviour of
tax payers as countries typically recognize the right of a taxpayer to arrange his affairs in
such a way as to pay less tax.9
3
4th revised edition 2001; editor Barry Larking.
4
Wolfgang Kessler and Rolf Eicke, Back to basic- stages of international tax planning or: getting the grip on a rocky road,
Intertax, vol. 35. Issue 6/7, p. 373.
5
6
7
Paulus Merks, Tax evasion, tax avoidance and tax planning, intertax, volume 34, issue 5, p. 272.
8
Paulus Merks, Tax evasion, tax avoidance and tax planning, intertax, volume 34, issue 5, p. 273.
9
F. Vanistendael, Judicial interpretation and the role of anti-abuse provisions in tax law, in G. S. Cooper (edited by), Tax
Avoidance and the Rule of Law, Amsterdam, 1997, p. .
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Rohatgi on the other hand makes a distinction between allowable tax avoidance, as
within the spirit of the law, and unallowable tax avoidance. According to him tax planning
is acceptable tax avoidance because it reduces the tax liability through the movement or
non-movement of persons, transactions or funds, or other activities that are intended by
legislation. It refers to tax mitigation by the use of tax preferences given under the law or
by means that the tax law did not intend to tax. The tax laws may permit certain
discretionary tax planning.10 Rohatgi states that international tax planning is “the art of
arranging cross-border transactions with the knowledge of international tax principles to
achieve a tax effective and lawful routing of business activities and capital flows.(…)
International tax planning has been defined as a tax-driven proactive arrangement of a
person’s affairs to minimize his tax results. (…) Besides to reduction in the overall
effective tax rate, it may also lead to tax deferral and reduction in tax compliance costs.
And it not only looks at legal tax-saving opportunities but also at tax risks such as double
taxation and prospects of counteracting tax legislation.”11 The author makes a distinction
though between defensive and offensive tax planning whereby defensive tax planning is
to ensure that the taxpayer’s tax liability gets higher than that of domestic taxpayers.12
Offensive tax planning on the other hand is considered tax planning which includes
complex tax schemes to avoid global taxes.13 Rohatgi also states in his book that
acceptable avoidance is when legal means are used to reduce tax burden through
planning and unacceptable tax avoidance and evasion are considerd illegal acts.14
After having researched different sources in literature, there can be concluded for the
purpose of this research that acceptable tax planning is to be the behavior which aims at
reducing/minimizing the tax liability, but whereby the spirit and borders of the tax law are
respected by the tax payer.
CORPORATE SOCIAL RESPONSIBILITY
After having narrowed down the first benchmark on what tax planning is for the purpose
of this research, another benchmark needs to be set. Corporate social responsibility
(hereafter: CSR) is a broad concept with influence on the behavior of companies. CSR
does not only concern taxes but also a (global or national) society.15 For this research
will focus on CSR in relation to tax.
Carroll sees CSR as the social responsibility of business to encompass the economic,
legal, ethical, and discretionary expectations that society has of organizations at a given
point in time.16 He believes that global CSR consists of the economical, legal, ethical and
philantrophical component.17 Due to these four components he finds that global CSR
suggests that a multinational should strive to make a profit consistent with expectations
for international businesses, obey the law of host countries as well as international law,
be ethical in its practices, taking host-country and global standards into consideration
10
R. Rohatgi, Basic International Taxation (second edition), p. 139.
11
R. Rohatgi, Basic International Taxation (second edition), p.1.
12
13
14
R. Rohatgi, Basic International Taxation (second edition), p.11.
15
Tax planning is an inherent major part of major business decision making. There is a correlation between tax planning
issues and non-tax planning issues, as the latter can sometimes not be realized due to an inefficiency of the former. See
Wolfgang Kessler and Rolf Eicke, back to basis, stages of international tax planning or: getting the grip on a rocky road.
INTERTAX, vol. 35. Issue 6/7, p. 374
16
A.B. Carroll, managing ethically with global stakeholders: present and future challenge, academy of management
executive, 2004, vol. 18, no. 2, p. 116.
17
executive, Academy of Management Executive, 2004, vol. 18, no. 2, p. 116
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and be a good corporate citizen, especially as defined by host country’s expectations.18
With regard to Carroll’s vision, CSR is also approached as a concept whereby
organizations consider the interests of society by taking responsibility for the impact of
their activities on customers, suppliers, employees, shareholders, communities and
other stakeholders, as well as the environment. This obligation is seen to extend beyond
the statutory obligation to comply with legislation and sees organizations voluntarily
taking further steps to improve the quality of life for employees and their families as well
as for the local community and society at large.19
In order to define the benchmark for this research, CSR will be considered going
beyond statutory obligations based upon tax law.20 The lower limit of CSR is when a
company pays the taxes as provided by a tax law, even if this means reducing the tax
due by using a (legal) rule that prevents paying more than can be levied according to the
tax law.
2.2. THE ANTI-BASE EROSION RULES UNDER DUTCH TAX LAW
Base erosion implies all sorts of actions taken by the taxpayer to be undertaxed. It can
imply that a taxpayer deliberately keeps information from the tax administrator, so a
correct taxable base cannot be calculated or that a taxpayer tries to structure its
business (globally) in such a way to save on paying taxes.
The Netherlands prevent base erosion in different ways, such as the limitation of
interest deduction, exit taxation and thin cap. These ways are all are legislatively
created. In this research the focus will be on the rules in Corporate Income Tax Act21
and the Personal Income Tax Act22.
In 2003, the State Secretary of Finance announced that he was not interested in starting
a research on how to deal with the different classification for tax purposes of equity and
debt capital.23 In a letter dated 29 of April 2005, the State Secretary indicated that the
increasing quantity anti-avoidance rules aim at preventing base erosion through interest
deduction. The State Secretary of Finance also announced that due to the amount of
rules created to prevent previously mentioned behavior among taxpayers, the rules have
become very detailed. At a later point in time the State Secretary promised in the letter
that the rules will be reviewed, cleaned up or replaced.24 In a report published during the
parliament year 2005/2006, the parliament asked the State Secretary for a time by which
the changes and simplification of the rules concerning the limitation of interest deduction
could be expected.25
Legislative changes on the CITA are expected in the Netherlands on a short term
notice. The State Secretary of Finance announced last December that new legislation
concerning the limitation of excessive interest can be expected. The aim of this new
legislation is, as mentioned by the State Secretary, to exempt interest paid within a
group or affiliated companies from the tax base and therefore improving the
18
executive, 2004, vol. 18, no. 2, p. 118.
19
Source: Wikipedia
20
Also see A.B. Carroll in ‘A three dimensional conceptual model of corporate performance, academy of management
review, vol 4, no 4, 1979, p. 500.
21
In Dutch: “de wet op vennootschapsbelasting 1969”.
22
In Dutch: “de wet op de inkomstenbelasting 2001”.
23
NV, Kamerstukken II 2002/2003, 28 487, nr. 7, p. 14-15.
24
Brief Ministerie van Financien van 29 april 2005. Nr. AFP 2005-00-386, VN 2005/24.3
25
Verslag van een schriftelijk overleg, kamerstukken II 2005/2006, 30 107, nr. 5. Blz. 21-22.
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establishment’s conditions in the Netherlands, to battle excessive interest deduction and
to simplify the CITA. Proposed are therefore three ways to accomplish the previously
mentioned goals on the limitation of interest deduction rules.
The first proposition is to introduce a ‘comprehensive business income tax’ (CBIT)26
whereby the interest is excluded from taxation within the CBIT-system. It should be
noted that interest received from other CBIT-companies is tax exempt, though interest
received from households, governments and so on, are taxed. Another option is limiting
the interest deduction among group companies and lowering the taxation of interest
received by a group company. This can be accomplished by excluding interest from
taxation among group companies as mentioned by the professors Engelen, Vording and
Van Weeghel via introducing an obligatory interest box whereby the tax rate is equal to
zero.27 The last suggestion is the system whereby an earnings stripping rule is
introduced in Germany in 2008. 28
Van der Geld29 believes that the previously mentioned options are measures for
aggressive tax competition, and will therefore trigger counter reactions from Member
States. Van der Geld believes that the option provided by Engelen, Vording and Van
Weeghel, as well as the (optional or obligatory) interest box, will be considered as a nice
vehicle for multinationals by the Member States within the EC. Kemmeren on the other
hand believes that the problem concerning the interest lies in the fact that interest is not
taxed. He states that, in line with Van der Geld’s opinion, that the suggested interest box
causes other Member States and treaty partners to take an opposite position with regard
to the Netherlands.30
2.3. EC-LAW/ ECJ CASE LAW
In order to determine whether a regulation from a Member State is in line with EC-law,
the ECJ applies the so called “rule of reason”. This step-by-step plan contains a way to
systematically determine if (eventually) there is a justification for the hindrance.
The freedom of establishment contains, included in article 43 EC-law, the right to use the
internal Market. Article 43 EC-law also states that Member States are not allowed to
discriminate on the basis of nationality or origin. This article applies to natural as well as
legal persons31 who are resident of a Member State and who practice cross-border
economical activities in the other Member State. A legal person needs, however, to
comply with (cumulative) requirements mentioned in article 48 (2) EC-law:
1. incorporation to the law of a Member State; and
2. the legal person needs to have its statutory seat, its board of directors or its parent
company32 within the EU.33
The ECJ interpreted the definition of establishment in its judgments. From the Gebhard-
case can be concluded that the ECJ defines this conception rather broad. According to
this judgment the concept of establishment within the meaning of the Treaty is therefore
26
CBIT consists of a system whereby the received interest is not taxed, and where the paid interest is not deductible.
27
See Engelen, e.a., Wijzigingen van belastingwetten met het oog op het tegengaan van uitholling van de
belastinggrondslag en het verbeteren het fiscale vestigingsklimaat, WFR 2008/891.
28
See Brief van de Staatssecretaris van Financiën, 15 December 2008. nr. DB2008/639U; VN 2009/2.15.
29
See J.A.G. van der Geld, De behandeling van rente in de VPB heroverwogen, WFR 2009/145.
30
E.C.C.M. Kemmeren, Renteaftrek is niet het probleem in de vennootschapsbelasting; wel het niet-belasten van rente!,
Weekblad Fiscaal Recht 2009/401.
31
Article 43 EC-law is also applicable to legal persons which can be concluded from Article 48 EC-law. This article states
that legal persons are equal to natural persons.
32
ECJ 27 September 1988, case C-81/87 (Daily Mail), point 21.
33
ECJ 16 July 1998, case C-246/96 (ICI), point 20.
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a very broad one, allowing a Community national to participate, on a stable and
continuous basis, in the economic life of a Member State other than his State of origin
and to profit therefrom, so contributing to economic and social interpenetration within the
Community in the sphere of activities as self-employed persons.34 In the Factortame-
case the ECJ continued fine tuning the conception of establishment. Conclude from this
judgment can be that four cumulative requirements need to be met in order to comply as
an establishment as in article 43 EC-law. These are (i) the involvement of the actual
pursuit of an economic activity (ii) through a fixed establishment (iii) in another Member
State (iv) for an indefinite period.35 Subsequently, it can be concluded from the Baars-
case36 that the freedom of establishment is appilicable in case a legal person holds a
cross-border participation in another (active) legal person which has such an influence
on the activities of the other legal person.
In principle the step-by-step plan to determine whether or not a regulation falls under
unwritten justifications consists of eight steps.37 In the Gehard-case these steps have
been summarized in four (fiscal) judicial criteria. Although the fundamental freedoms
have different purposes, the ECJ tries to apply all four freedoms in the same way in
order to improve the use and legal certainty of the freedoms. The ECJ has summarized
the judicial criteria of unwritten justifications in the Gebhard-case.38 Paragraph 37 states
that it follows (…), from the Court's case-law that national measures liable to hinder or
make less attractive the exercise of fundamental freedoms guaranteed by the Treaty
must fulfill four conditions, which are being applied in a non-discriminatory manner;
being justified by imperative requirements in the general interest; being suitable for
securing the attainment of the objective which they pursue; and not going beyond what
is necessary in order to attain it.
The ECJ aims at answering the question whether or not a national measure is
discriminating or hindering. Discriminating are measures that (openly or effectively)
differentiate national and cross-border situations. Disparities, on the other hand, are
differences between tax systems due to the lack of harmonization of legislations.39 The
freedom of establishment forbids the (unjustified) differentiating limiting measures; in
other words Article 43 EC-law forbids discrimination or hindrance. The ECJ has noted
that disparities do not fall within the scope of the four fundament freedoms.
A restriction is only justifiable when the rule strives for a lawful purpose that is in
compliance with EC-law and which is justified by the presence of pressing reasons of
public interest. Beside to the justification for the restrictive rule, the rule should be
proportional and necessary with regard to its purpose.40
34
ECJ 30 November 1995, case C-55/94 (Gebhard), point 25.
35
ECJ 25 July 1991, case C-221/89 (Factortame), point 20.
36
ECJ 13 April 2000, case C-251/98 (Baars), point 22.
37
See e.g. ECJ 12 May 1998, case C-336/96 (Gilly).
38
See e.g. ECJ 30 November 1995, case C-55/94 (Gebhard), point 38; Fiscale Encyclopedie De Vakstudie, Nederlands
Internationaal Belastingrecht (NIB) 4.8.2.2 and Terra, B.J.M. e.a., European Tax Law, p. 43.
39
See e.g ECJ 12 May 1998, case C-336/96 (Gilly), point 30, 47 and 53; ECJ 12 December 2002, case C-385/00 (De
Groot), point 93 and ECJ 23 February 2006, zaak C-513/03 (Van Hilten), point 47.
40
See NIB 4.8.3.
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CHAPTER 3: THE NETHERLANDS’ SYSTEM
This chapter discusses the limitations of interest deductibility as well as the thin cap
regulation in the Netherlands. First, the necessity of correct classification of funds will be
discussed. Further, equity and debt according to Dutch tax law will be described.
Subsequently the regulations which limit interest deduction in certain situations will be
discussed as well as the thin cap regulation. Further this chapter focuses on exit taxes
that are levied from persons. Finally the regulations will be tested against the
benchmarks of this research and will be followed by a short conclusion.
3.1. THE CORRECT CLASSIFICATION OF FUNDS UNDER THE CITA
Through the application of several rules in the Corporate Income Tax Act 1969 (CITA),
the Netherlands prevents excessive interest deduction among related companies in
order to prevent the defining of their own terms when providing funds to a related
company.
In the Netherlands debt is in principle a loan as defined by the Civil Code. For tax
purposes, loans can be classified differently from the Civil Code. The necessity for a
correct classification of funds is important because the compensation for equity
(dividend) is not deductible for tax purposes41 while the compensation for loans (interest)
in principle is.
According to civil law, equity has three primary functions. The first one is to indicate
the difference between the rights of the shareholders42; the second to reach the
corporate goal and the third to stand as guarantee for creditors.43 Yet, in civil law there
are different definitions given to equity when it comes down to equity in limited (or public)
liability companies. These definitions are included in the Articles 2:67 and 2:178 of the
Civil Code.44 The reason for these different kinds of equity in civil law is to clarify the
different functions of capital within a company.45
In civil law the definition of a loan is provided by article 7A:1793 of the Civil Code. In
this section a loan is defined as “the debt that arises from loaning money [that] only
exists when this amount is legally agreed upon.” Article 7A:1804 provides that payable
interest needs to be agreed on as well.
The CITA lacks a definition of equity and debt but there are a number of judgments
which need to be considered when defining equity and debt for tax purposes. Case law
from the Dutch Supreme court46 indicates that in principle the civil form of a loan is to be
followed for tax purposes.47 Even though that this judgment states the main rule, there
are exceptions to this formal criterion, namely: (i) the substance over form loan (sham),
41
See article 10 (1)(a) CITA.
42
See G.M.M. Michielse, ‘Thin capitalisation’ in fiscale recht. Afbakening van vreemd vermogen ten opzichte van eigen
vermogen binnen concernvermogen, p. 23 and L.W. Sillevis e.a., Studenteneditie 2008-2009, Cursus belastingrecht
(Inkomstenbelasting), 2.0.6.B.b. and J. van Strien, renteaftrekbeperingen in de vennootschapsbelasting, p. 15.
43
Please note that in case of bankruptcy the tax administration has a privileged status and so possibly other creditors as
well.
44
See e.g. P. Van Schilfgaarde, p. 51. He defines the following kinds of capital under the Civil Code: 1. authorized capital.
This capital is the maximum amount for which shares may be issued without the amendment of the articles of
incorporation; 2. issued capital. This capital consists of the sum of the nominal amounts of the shares issued by the
establishment of the company. 3. paid capital. Paid capital is the issued capital, as far as the obligation to deposit is done.
4. minimum capital. The minimum capital is the minimal limit of the amount that needs to be deposit in the corporation of
the prior three sort of capital (article 2:178 (4) of the Civil Code).
45
See P. Van Schilfgaarde 2003, p. 51-93.
46
HR 27th January 1988, nr. 23 919, BNB 1988/217, point 4.2.
47
This is known as the formal criterion.
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(ii) the participating loan and (iii) the financing a loss loan. The consequence of a loan
classified as one of the previously mentioned exceptions is that the debt will be
reclassified as equity for tax purposes and subsequently prevents interest from being
deducted.
In the judgment BNB 1954/357 the Supreme Court ruled that a substance over form
loan is present if it is not of importance what the form of the transaction is, meaning the
name of the transaction or the specification of transaction, but what the intentions of the
contracting parties were when concluding the transaction.48 In BNB 1971/74 the
Supreme Court further elaborated on the substance over form loan, stating that if parties
intended tp provide equity, the loan should be reclassified to equity (substance over
form). In the judgment of BNB 2007/10449 the Supreme Court ruled that the obligation to
repayment of the loaned sum was essential to classify a debt as a loan.
With regard to the second exception, criteria for the participation loan are summarized
and partially included in Article 10(1)(d).50 A loan will be classified as a participating loan
if a loan as well as the mutation of the value of the loan, [are] concluded under such
conditions that it actually functions as equity to the taxpayer in determining the profit. It is
therefore concluded that compensations on this loan and its mutations are non-
deductible upon determination of the profit. In order to understand what is meant by
concluded under such conditions that it actually functions as equity, it is necessary to
consult case law and more precise, the judgment of BNB 1998/208. In this case was
concluded by the Supreme Court that in order to answer the question whether funds
provided by the creditor to an entrepreneur, are to be classified as a loan or as equity for
tax purposes, leading [is] how the loan is concluded under civil law. An exception to the
rule is if the loan is concluded under such conditions that the creditor participates to a
certain extent in the company of the debtor through the loan. These conditions are only
fulfilled if the compensation for the loan depends almost only on the profit, the loan is
subordinated to all other competitive creditors and the loan has no fixed term and falls
only due in the case of bankruptcy, suspension of payment and liquidation.51 These
criteria were further confirmed in BNB 1999/176. In BNB 2006/82 the Supreme Court
ruled when the term of a loan (...) exceed[s] 50 years (…) the criterion fixed term [is not
met].52
The third and last exception to the formal criterion has been created by the Supreme
Court in its judgment BNB 1988/217. In point 4.4 the Supreme Court ruled that dividend
is not deductible when a taxpayer, on the basis of his position as a shareholder of a
company, holds a participation according to Article 13, provides a loan under such
conditions that no value or partly no value can be attached to the claim arising from this
loan, which should have been clear from the very beginning, because the loan or a part
of the loan will not be paid back so that the capital or a part of it permanently left the
equity.
3.2. PREVENTION OF EXCESSIVE INTEREST
When the loan is not reclassified, it should be determined whether the interest is
deductible. Before answering this question, it is necessary to know that interest needs to
48
See also HR 8 September 2006, VN 2006/47.21,point 3.3. and 3.4.
49
HR 8 september 2006, nr. 42 015, BNB 2007/104
50
This Article indirectly aims at the participating loan, and is therefore considered useless because via this article the
judgment of the participating loan is meant. Requirements for a participating loan are found in the judgment itself.
51
See HR 11 March 1998, nr. 32 240, BNB 1998/208, point 3.3.
52
See HR 25 November 2005, nr. 40 989, BNB 2006/82, point 3.2.
-8-
be businesslike concluded according to Article 3.8 PITA in conjunction with section 8
CITA.53 If this is the case, the interest is in principle, deductible for tax purposes. If the
interest is not businesslike concluded, then the interest for as far as it is businesslike
concluded the excessive amount is not deductible.
If a loan is reclassified as equity54 on the base of the decrees of the Supreme Court, and
is therefore considered a loan as one given below, the loan is to be considered equity
and therefore the interest is not deductible.
3.2.1. ARTICLE 10A CITA
As from 1997 this article has been included in the CITA. A reason to do so was the
“winstdrainage” cases.55 Another reason was the Plc-case in 1996 in which the Supreme
Court concluded that in case of an internal regrouping the interest was deductible in the
Netherlands and could not be prohibited of deduction because of fraus legis or ‘richtige
heffing’56 when tax is levied from the interest receiver. So due to the previously
mentioned cases the legislator created Article 10a, which provides that in determining
the profit, non-deductible are interest payments - including costs and currency exchange
returns - concerning debts which are legally or actually directly or indirectly due to a
related57 legal or natural person, to the extent that the debts legally or actually directly or
indirectly are linked to one of the following legal transactions:
(a) a profit distribution or a refund of paid equity by the taxpayer or a related legal person
subject to this tax, to a related legal or natural person to the taxpayer;
P BV
Loan
Dividend
S BV
(b) an equity payment by the taxpayer, by an related legal person subject to this tax or
by a natural person with residency in the Netherlands, to an related legal person to the
taxpayer; or
NL
Abroad P
BV
Equity
Payment
D1 D2
BV BV
Loan
53
Even though article 8b CITA (at arms length) will not be discussed, it is clear that like determining prices at arms length,
interest needs to be determined at arms length as well.
54
Concluded in HR 9 May 2008 (Nr. 43 849), BNB 2008/191 is that when materially there is debt equity, it is possible for
unbusinesslike elements to be present in the loan which need to be corrected.
55
HR 6 September 1995 (Nr. 27 927), BNB 1996/4; HR 20 September 1995 (Nr. 29 737), BNB 1996/5; HR 27 September
1995 (Nr. 30 400); BNB 1996/6.
56
In order to successfully apply fraus legis a motive test and a norm test are required. For further information on the
limitation of interest deduction via fraus legis, please check Garincha Pattinaja’s paper. Also check the judgments HR 11
July 2008, BNB 2008/266 and Hof Arnhem, April 28 2009, LJN: BI3989. Also check P.J.J.M. Peters,
Renteaftrektemporisering: is er nog wel sprake van uitstel?, WFR 2002/605; 2.2.b.
57
Related is explained further in this paragraph.
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(c) the acquisition or the expansion by the taxpayer, by a related legal person subject to
this tax or a natural person with residency in the Netherlands, of an interest in an legal
person that becomes a related legal person after this acquisition or expansion to the
taxpayer.58
Article 10a applies in the possible following cases:
P P Interest
NL NL
P P
Interest
S S
Article 10a CITA combats the situation of interest paid on a loan concluded among
related companies that is deducted at a high rate while the received interest is taxed
against a low rate. When group companies have this kind of ability to determine the
terms for the provided fund, the loan can be concluded under artificial conditions.59 This
is the so-called drainage of profit. In other words, Article 10a CITA combats
constructions whereby artificial created interest rises at the cost of the Dutch tax base.
Such artificiality is present if there are money flows disguised in the form of dividends,
repayment of equity capital or refund of equity capital while they actually function as
equity to the creditor.60 In case one of the previously mentioned events or transactions
occurs then the interest is in principle not deductible.61
For the application of this article, legal persons can be considered related if the
taxpayer holds an interest of at least one third of the shares; a legal person holds an
interest of at least one third in the taxpayer; a legal person in which a third party holds an
interest of at least one third, while this third party also holds an interest of at least one
third in the taxpayer; and if the legal person, like the taxpayer, is part of a fiscal unity62,
unless article 10d [thin capitalization] is applicable. (…).63
Article 10a is applicable when three conditions are met: the transaction is contained for
tax purposes, a loan is granted to a related legal or natural person.64 To put it differently:
there has to be a causal connection between the legal transaction (e.g. the repayment of
58
Article 10a(1) (c) CITA. Noted should be that a legal transaction can also connect a debt to a legal act, as meant in the
first paragraph, if the debt is contracted after the legal transaction is made (Article 10a(2) CITA).
59
TK, 2005-2006, 30572, nr. 4, p. 14-15.
60
MvT, 2005-2006, 30 572, nr. 3, p. 19-21, 35-36, and p. 49-50.
61
When, however, a company could have loaned the money on a stand-alone basis (i.e. without guarantee from another
group company) from a third party, the interest is in principle deductible. See therefore MvT Kamerstukken II 1995/96,
24 696, nr. 3, p. 18 or MvT Kamerstukken II 1995/96, 24 696, nr. 3, p. 17.
62
The fiscal unity regulations can be found in Article 15 CITA and will not be discussed in this thesis.
63
Article 10a(4) CITA. Related natural persons can be found in paragraph 5.
64
In NNV Kamerstukken II 2006/07, 30 572, nr. 8, p. 113 has been confirmed that in case of lending via a company to
another related company, Article 10a CITA is not applicable unless there is parallelism between the debt and the external
finance. One of the criteria on determination whether there is indeed parallelism, is the terms.
-10-
capital) and the loan. It should be noted that there are exceptions to Article 10a CITA.
The first is when the taxpayer makes a reasonable case for the fact that the loan and the
legal transaction connected to the loan are predominantly business-driven. The second
is if the taxpayer makes a reasonable case for the fact that the interest is taxed with
either a profit tax or an income tax of ten percent, and legally or actually directly or
indirectly levied from the creditor. In this case, there can be no compensation of losses
or any other right from the year previous to the year in which the loan was concluded as
a result of the interest not being subject to tax according to reasonable standards
according to Dutch law. Income taxation is considered reasonable over the income
calculated according to Dutch tax rules and if this results in an effective taxation of at
least ten percent.65
Since 2008 it is possible for the Tax Authorities to prove that previously mentioned
exceptions are not applicable to a taxpayer even the interest is subject to at least 10
percent tax at the level of the creditor. The Tax Authorities need therefore to proof that
the loan was likely provided on good reasons, except on sound business reasons.
Interest which is not deductible is taxed at the level of the creditor (without considering
the applicability of the proof of the contrary).
Regarding EC-law the State Secretary announced several times that Article 10a66 is in
line with EC law.67 According to the State Secretary the EC-law leaves it up to the
Member States to take real and proportional measures in order to combat excessive
interest deduction due to a lack of harmonization.68
With regard to the research, it should also be questioned if and to what extend Article
10a is a tool for tax planning and to minimizing taxes, but also if 10a stimulates CSR
behavior among taxpayers.
In the literature opinions can be found on this topic. For instance the note by Redactie
Vakstudienieuws69 finds that Article 10a is not in line with EC-law due to the fact that
interest is never deductible as well as the fact that the interest cannot be deducted with
the help of the resident state.
From a tax planning point of view, planning is possible in order to prevent the
application of Article 10a CITA. Because of the fact that there are certain requirements
necessary, one can try to prevent getting into such a position. When a taxpayer achieves
this, taxes can be minimized because the interest can be deducted from the profit. But is
this CSR conform behavior? When considering the definition given in the second
chapter, it can be stated that this article does not stimulate contra CSR behavior. This
article sets criteria, when not fulfilling these criteria interest is deductible and when not
fulfilling these criteria, interest is not deductible. Nevertheless, in both cases the law is
applied and criteria are either fulfilled or not. This article does therefore not stimulate
CSR behavior but does not stimulate behavior which is not in line with CSR.
65
NNVKamerstukken II 2006/07, 30 572, nr. 8, p. 141 and Kamerstukken I 2006/07, 30 572, nr. C, p. 31
66
NV, Kamerstukken II 1995/96, 24 696, nr. 5, blz. 9-10; NNV, Kamerstukken II 1996/97, 24 696, nr. 8, blz. 5; Nader
verslag, Kamerstukken II 2003/04, 29 210, nr. 20, blz. 2-3, NNV, Kamerstukken II 2003/04, 29 210, nr. 25, blz. 4; NV,
Kamerstukken II 2005/06, 30 572, nr. 8, blz. 68.
67
NV, Kamerstukken II 1995/96, 24 696, nr. 5, blz. 10.
68
NV, Kamerstukken II 1995/96, 24 696, nr. 5, blz. 9-10. It should be noted though that in the Dutch literature other
opinions are found.
69
Conclusiion A-G Geelhoed, ECJ 29 June 2006, nr. C524/04, VN 2006/41.11
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3.2.2 ARTICLE 10B CITA
Article 10b provides that if the taxpayer is granted (i) a loan from an related legal person
conform Article 8b CITA70 and the loan does (ii) not have a fixed repayment date of over
10 year after contracting the loan, (iii) while legally or actually no interest has been
charged or the interest is to a considerable extent lower than the economic value what
independent parties would have agreed upon, then the interest and mutations in the
value of that loan are not deductible when determining the profit. If the repayment date is
postponed until later the loan is then considered having the new repayment date, for the
purpose of the first sentence, from the moment the loan was contracted.
The ratio behind this article is to prevent international mismatches between the
Netherlands and other countries. This can be the case if an interest-free loan provided in
Ireland between related companies, on which no interest is imputed in Ireland while in
the Netherlands the interest is deductible. The limitation in deduction of excessive
interest71 applies on interest-free concluded loans whereby payments deviate at least 30
percent from a business wise concluded interest.72
If 10b is applied in national situations, this will cause a correction of the profit of the
receiver and provider.73 The double taxation is solved with the hardship clause.74 In
international situations when no interest is concluded, the at arm’s length principle forms
the base to calculate the interest. This interest however, which restores the business
wise concluded interest, might lead to interest income which is excluded from deduction
due to Article 10b. In case the creditor, who falls within the scope of a tax system
comparable to that of the Netherlands, is taxed for the previously mentioned correction
on the interest, this taxation results in double taxation. Neither article 10b nor
parliamentary history indicates if this double taxation should be eliminated as has been
done domestically. Lack of information may be explained by the fact that 10b has been
included recently, which also explains the reason why issues specifically concerning
international and European tax law have not risen yet.
Due to the fact that Article 10b is a pretty new rule, it is hard to say how it can be used
for tax planning and how this rule does or does not stimulate CSR behavior.
3.3. THIN CAP REGULATION - ARTICLE 10D CITA
The final rule which limits interest in determining the taxable profit is the thin
capitalization rule.75 The applicability of this rule results in non-deductibility of that part of
the interest – including costs of loans - that equals the ratio consisting of the excessive
debt and the average76 debt when determining the profit for that year. The amount of
interest that is not deductible can not be more than the amount of interest from loans77
70
This is the Netherlands’ ‘at arms length’ regulation. An affiliated company as in Article 8b CITA concerns a concern
more than ‘related’ does. It concerns companies which participate directly and indirectly in the management or equity of
the taxpayer. This definition has a larger extend that related companies, because no quantized limit is set to the
participation.
71
It should be noted that this article does not only apply to interest, but also on all value mutations of the loan as well.
MvT, TK, 2005-2006, 30572, nr. 3, p. 50.
72
Compendium, chapter 5.3.
73
This is confirmed in the decree of 11 July 2002, V-N 2002/38.24, question 11 concerning hybrid loans.
74
NNV, Kamerstukken II, 2005-2006, 30 572, nr. 8, p. 84
75
Loans as in paragraph 7 which interest was not deductible due to the applicability of the previously mentioned limitation
of interest deduction rules, are not considered in the applicability of this article.
76
The averages mentioned in this article are determined on the basis of the amounts at the beginning and end of the
year, whereby the average equity is at least EUR 1.
77
For this article a loan is defined as a receivable or liability arising from a loan agreement or a comparable agreement
and by which the interest of this debt would be taken into account in determining the profit.
-12-
that are directly or indirectly due to entities related to the taxpayer reduced with the
amount of interest on loans granted to these entities. It only applies to taxpayers who are
related with other persons in a group as mentioned in Article 2:24b of the Civil Code.78
Excessive debt is present when the average debt of the taxpayer is three times higher
than the average equity and this excess is higher than Euro 500,000. This calculation is
called the fixed ratio. It should be noted that tax deductible provisions are not treated as
equity for the fixed ratio and that debt only resembles the total of the outstanding loans
to be paid, and reduced with outstanding receivables.
However, a taxpayer can choose to apply the group ratio. This means that the excess
debt is determined as the amount by which the average debt of the taxpayer exceeds
the average equity multiplied by a factor equaling the equity ratio of the group.79 The
debt and equity are determined for the group ratio on the basis of company law and
accounting rules, as prepared under Title 9, Book 2 of the Civil Code, or under similar
foreign legal measures. The factor equals the average debt divided by the average
equity according to the consolidated annual accounts of the group as meant in Article
2:24b of the Civil Code or under a similar foreign legal measure, of which the taxpayer
forms a part. If the taxpayer forms part of more than one group, the group with the
highest balance total is used as measurement.80
This article mainly focuses on cross-border operating groups81, but it does not matter
whether the debt receiver or provider is resident in the Netherlands or not. The creditor
will be taxed for the interest received and the debtor cannot escape the application of
this article by relying on the comparable taxation on the side of the creditor.82
In the light of the EC law83, the State Secretary exclusively announced several times
that 10d84 is in line with EC law as well as case law among others because the
Netherlands thin capitalization rule does not make a distinction between foreign and
national taxpayers.85 Therefore judgments like the Lankhorst-Hohorst case and the Thin
Cap case are not applicable.
In the conclusion by AG Geelhoed it was noted in the points 68 and 69 that thin
capitalization rules which fall totally outside the scope of the ratio legis and therefore just
a formality, are an anathema for the internal market and therefore possibly
discriminating.86 This can cause problems concerning Article 10d looking at the fact that
domestic taxpayers can opt for the fiscal unity due to which the applicability of Article
10d stays out. In case of cross-border situations this is not possible, because a cross-
border fiscal unity is not (yet) available.87
Considering the research question and its benchmarks, it can be said that Article 10d
CITA is a rule which can be used for tax planning. Due to the fact that the ratio of 1:3 or
1:5 is calculated every year again, the ratio is manipulative due to which a taxpayer can
arrange how much debt and capital equity the balance sheet will show for tax purposes.
When planning the amount of equity correctly it can be questioned whether the
minimization of taxes which arises is CSR conform. This question rises because CSR is
78
This definition of group differs from group as mentioned in previous articles.
79
The limit of E 500.000 does not apply in this case.
80
The taxpayer can choose each year which ratio to apply until de final assessment has been imposed.
81
NvW, Kamerstukken II, 2003-2004, 29 210, nr. 8, p. 9.
82
NvW, Kamerstukken II, 2003-2004, 29 210, nr. 8, p. 11; NnNV, Kamerstukken II, 2003-2004, 29 210, nr. 25, p. 31.
83
In this thesis will not be focused on the Directives.
84
NV, Kamerstukken II 2003/04, 29 210, nr. 25, blz. 4; NV, Kamerstukken II 2003/04, 29 210, nr. 25, p. 15-16; NV,
Kamerstukken II 2003/04, 29 210, nr. 25, blz. 16-17; NV, Kamerstukken I 2003/04, 29 210, C, p. 14; Schriftelijke
antwoorden op vragen Eerste Kamer, brief Staatssecretaris van Financiën van 9 december 2003, nr. AFP2003/901M
85
Schriftelijke antwoorden op vragen Eerste Kamer, brief Staatssecretaris van Financiën van 9 december 2003, nr.
AFP2003/901M
86
Conclusion A-G Geelhoed, ECJ 29 June 2006, nr. C524/04, VN 2006/41.11
87
In a judgment on 18 June 2008, nr. 2007/6114, VN 2008/60.2.2 lawcourt ‘s-Gravenhage concluded that because of the
lack of cross-border activity there is no access to Article 43 EC-law.
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a behavior from the taxpayer. As mentioned in chapter two the lower limit of CSR is
when a taxpayer fulfils the requirements provided by law. When a company makes sure
that its equity falls within the scope as included in Article 10d, the taxpayer fulfils the
requirements provided by law. Therefore this article does not stimulate CSR unfriendly
behavior.
3.4. THE LIMITATION OF INTEREST DEDUCTION RULES IN OTHER SYSTEMS
The eight other countries have provisions preventing deduction of excessive interest.
Including the Dutch tax rules, the preventive rules can be categorized as (i) general anti-
avoidance rules; (ii) thin capitalization rules, and (iii) specific statutory provisions.
The first category includes Austria. This country has an at arm’s length approach
which applies to all businesses. The Supreme Administrative Court
(Verwaltungsgerichtshof) has established certain broad and rather liberal guidelines
which are used to determine whether the equity for commercial purposes is adequate for
the purpose of taxation.88 This approach, based on a general anti-avoidance doctrine,
identifies hidden equity capital and subsequently reclassifies interest deductions as
hidden profit distributions.
Thin capitalization rules can be found in the countries Belgium, France, Spain and the
Netherlands.
Belgium has two thin capitalization rules.89 The first rule is included in article 18, 4° of
the Belgian Income Tax Code (B.I.T.C). Interest from loans paid to a person is
reclassified as a dividend if and to the extent that either the interest exceeds the market
rate or the loan exceeds the sum of the paid-up capital and the taxed reserves at the
beginning of the taxable period.90
Loans include any loan granted by a natural person to a company in which he owns
shares or by a person that performs a function of director in that company and any loan
granted to that company by their spouses or children when that person or his spouse
has the parents'legal usufruct of their children’s estate unless […] the loan is granted by
a resident company.91
Due to article 179 B.I.T.C. it is made clear that the exception does not apply to non-
resident companies, even if they have a permanent establishment in Belgium.92
The motive for the limitation of the reclassification to non-resident companies/directors
was found in counteracting unjustified profit relocations; an issue that was less feared for
when only Belgian companies were involved.93 The rule is partly a thin capitalization rule
and partly an anti-base erosion rule.94 Yet, contrary to traditional thin capitalization rules,
the shareholder loans made by non-resident companies/shareholders are not covered
by this provision.95
The wording of the article leaves no room for counterproof. Once the conditions of article
18, 4° B.I.T.C. are fulfilled, the taxpayer is not allowed to provide any justification for
exceeding the given boundaries.
88
Decision of 23 October 1984, No. 83/14/0257
89
See for extra information on these rules the paper Anti-base erosion rules in Belgium, written by Nick Vanwijnsberghe.
90
The debt/equity ratio is thus set at 1:1.
91
Thus, the debts mentioned do not refer to the entire debt of the company (Report Com. Fin. of 20 March 1997, Gedr.
St., Chamber 1996-97, no. 925/8, 34).
92
Com. I.B. 1992, nr. 18/48.
93
P. SMET, “Herkwalificatie interesten: strijdig met vrijheid van vestiging”, Fiscoloog 2008, afl. 1100, 1.
94
Cf. B. PEETERS, “Het O.E.S.O.-rapport inzake thin capitalisation en het Belgisch fiscaal recht”, T.R.V. 1989, 117.
95
L. DE BROE, International tax planning & prevention of abuse under domestic tax law, tax treaties & EC law. A study of
the use of conduit & base companies. doctoraatsthesis Rechten, K.U.Leuven, 2007, 155.
-14-
By reclassifying the interest paid on the aforementioned loan as a dividend (both for
corporate tax and withholding tax purposes) the interest is integrated in the borrowers
profit and subject to 25% dividend withholding tax96 instead of the 15% interest
withholding tax97.
The second Belgian thin capitalization rule is included in Article 198, 11° B.I.T.C.98 This
rule applies whenever a real beneficiary/recipient is not subject to tax for the interest
paid to him or when he is, with respect to the interest, subject to a tax treatment that is
considerably more favorable. When this is the case than the tax treatment following from
the general tax regime in Belgium, the deduction of the interest paid will be disallowed to
the extent that the borrower’s debt exceeds seven times his equity (being the sum of the
paid-up capital at the end of the taxable period and the taxed reserves at the beginning
of the taxable period)99. The taxpayer has no opportunity to prove that such debt/equity
ratio is in accordance with the market conditions.100
France determines its excessive interest in the following way.101 The deductible interest
amount is determined in two steps. Known as “the interest rate test”, it is firstly
necessary to identify the maximum deductible interest rate.102 This limitation applies to
simple shareholders and related companies,103 but related companies are allowed to
apply the “market rate”104 if it is higher. Assuming the interest rate on the related-party
loan complies with the above test, interest on such a loan is fully deductible, subject to
the “leverage test”, which is a thin-cap test. A borrowing entity will be deemed thinly
capitalized if the total amount of interest incurred on related party loans, which is
deductible under the interest rate test as included in Article 212 FTC, exceeds all three
limits below, namely (i) the debt/equity ratio of 1.5:1. This ratio is determined by
comparing the loans from associated companies with the equity capital of the borrower;
(ii) the interest/pre tax profit and exceptional items ratio. This ratio may not exceed 1:4;
and (iii) the interest received by affiliated companies/the interests served to companies
with a ratio of 1:1. Under this test, companies are not considered undercapitalized if the
amount of interest paid to associated companies does not exceed the amount of interest
received from associated companies.105
However, there are three kind of legal entities which are excluded from the application of
the thin capitalization rules. The first exception consists of companies where it concerns
interest arising from the activity of the companies. Differently said, it concerns
companies which main activity is the centralization of cash flows amongst the several
companies of a group. The second exception is when interest is paid to banks and
financial institutions, even if they are related to the borrowing company. Thirdly, it
concerns finance lease establishments.
96
Article 269, 2° B.I.T.C.
97
Article 269, 1° B.I.T.C.
98
Only applies to corporations as mentioned in article 179 B.I.T.C..
99
Parl. Question, Senat 1996-97, 9 May 1997, Bull. V&A, no. 1-51, 2582 (Question no. 238).
100
G. LOWAGIE, S. DINGENEN, “Onderkapitalisatie van vennootschappen”, in W. MAECKELBERGH and P. CARLIER
(eds.), Fiscaal praktijkboek - Directe Belastingen ’96-‘97, Diegem, Ced Samson, 1997, 317-318.
101
For more information on the French system, please check Aude Bonnemaison’s paper.
102
Pursuant to section 39-1-3°of the French Tax Code (FTC), the interest rate must not be higher than the annual average
interest rate on loans granted by financial institutions having a term of at least two years (Maximum interest rate: “MIR”).
103
The notion of “affiliated company” is defined in section 39(12) of the FTC: “two companies are to be considered as
affiliated, when one of the companies owns, directly or indirectly, the majority of the share capital of the other company or
has de facto management powers in said company or both companies are under the control of the same company”. The
"de facto control" exists where a company owns 50% or more of the voting rights in another company.
104
It is the rate that corresponds to the one that the borrowing company would have obtained from an independent
financial establishment for the same kind of financing operation.
105
In that case, the portion of the interest on related party loans which exceeds the higher of the above three limits will not
be deductible from that year’s taxable results (except if it does not exceed E 150.000) but may be carried forward subject
to certain conditions and subject to a five per cent discount for each year (after the second year).
-15-
Previously mentioned exceptions will not apply if the amount of non-tax deductible
interest is below EUR 150,000. The amount of EUR 150,000 is a threshold and not an
exemption. Any excess interest payments are deductible up to EUR 150,000. Interest
payments exceeding that amount may be carried forward within certain limits.
The safe-harbor applies when the creditor proves that its debt/equity ratio is lower than
the debt/equity ratio of the group to which it belongs, than the debtor may avoid the
deduction limitations. The amount of interest paid is deductible within the previously
mentioned limit which gives the highest deductible amount.106
Spain107 provides for thin capitalization rules under Article 20 TRLIS108 ( Law 62/2003):
“When the net debt remunerated, directly or indirectly from a company resident in Spain
(except financial entities), with a non-resident parent company exceeds by three times
the share capital of the resident company, the corresponding interest will be treated as
dividends”.
In accordance with Article 20(3) TRLIS, the general provision could be deviated if the
parties wish. They could ask in a proposal to the tax administration to fix another ratio
other than as stated paragraph 1. This proposal must be based on the price that the debt
receiver could have obtained under the normal conditions of the market.109
Spain uses the method of a fixed ratio in an objective system, recognized by the OECD
as a valuable way to determine debt financing. Consequently, the measure of anti thin
capitalization rules is enforceable when the debt or net equity ratio exceeds a coefficient
of three. Thus, Spain explicitly denies interest deductions when debt exceeds a
particular ratio.
The last group concerning interest deduction provisions is the countries which have
specific statutory rules. These countries are the United States, the Netherlands,
Sweden, Germany and Italy. Beside to the Netherlands, the other countries disallow
excess interest deductions using specific statutes; there is no general anti-avoidance or
thin cap rule that reclassifies debt into equity with the result of preventing excessive
interest deduction.
In the US110 several criteria must be met to disallow an interest deduction for a
corporation, such as the presence of related parties111 financing as included in I.R.C.
sec. 163(j). The interest deduction will be also disallowed if a related party lends money
to a borrower. This to the extent that the related party pays a lower tax rate than it would
have if it were a typical US taxpayer.112
This provision applies regardless of any treaty that would legitimately lower the
taxpayer’s US rate. If the taxpayer falls within the statute, then it is denied an interest
deduction to the extent the interest on the debt instrument exceeds 50% of the
corporation’s adjusted taxable income.113 Finally, the statute provides safe harbor for a
taxpayer that has a debt to equity ratio of 1.5-to-1114 or lower i.e., for these taxpayers,
there will be no application of Section 163(j).115
106
Check also IBFD Country Analyses, European Taxation – France 10.3.
107
For more information of the Spanish system, please check the paper written by Mathilde Lefroy.
108
Ley del Impuesto sobre Sociedades (Corporate Income Tax Law)
109
If the parent company resides in a tax heaven, this exception is not applicable.
110
For further information on the subject, please check Sam Kamyans paper.
111
A related party is generally defined owning more than 50% of the vote or value of another entity to which the financing
relates. See e.g., Section 267 I.R.C.
112
See Prop. Reg. § 163(j)-4(a).
113
See I.R.C. sec. 163(j)(1)(A).
114
One must bear in mind that this 1.5 to 1 debt to equity ratio is a safe harbor—thus, if a company has a debt to equity
ratio that satisfies this amount, the IRS will not challenge any of the interest deductions. The interest stripping rule is not
applicable for independant parties.
115
See I.R.C. sec. 163(j)(2)(A).
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In January 2009 Sweden enacted a statutory provision116 that denies interest
deductions; the so called “interest spins” resulting from intra-group financing.117 In
addition, the rule stresses that only interest deductions arising from defined activities are
to be denied i.e., there will be no denials for situations involving typical commercial
activity.118
The new rule denies interest deductions in three situations: (i) on internally funded
acquisition of shares and certain similar securities from a company in the community of
interest; (ii) temporary loans, in which an external loan is replaced with an internal
loan119; and (iii) so-called “back-to-back” situations in which a member of a group takes
out a loan from an external party on which another member of the group has a claim.120
The safe harbor to the rule is the so called “10 per cent test”. Under this exception
interest deductions are allowed when the “beneficial owner” of the interest will be taxed
in its home state by at least ten per cent.121
In the case of Germany122, Sec. 4h Einkommensteuergesetz (EStG) in conjunction with
sec. 8a Köperschaftsteuergesetz, denial of interest deductions applies to all businesses
except those that are pure asset management activities. Irrelevant is whether the lender
is a related party or not. The rule provides that interest expense is deductible to the
extent of interest income. Any interest expense beyond that is deductible only to the
extent of thirty per cent of the earnings before interest, taxes, depreciation and
amortization (“EBITDA”). Deductions denied in one taxable year may be carried forward
indefinitely. Non-deductible net interest payments may be carried forward indefinitely
and fully set off, thereby increasing interest expenses but not taxable income in the
calculation of the limited deductibility of interest payments in future tax years. However, if
a business is transferred or discontinued the carry-forward interest will be lost.
There are three exceptions to the limitation of interest deduction. The first one is when
the total amount of excessive interest is less than the threshold of EUR 1 million. In case
the interest paid exceeds this amount, the whole amount of interest payments becomes
non-deductible. 123 The second exception, included in Sec. 4h(2)b EStG, is when a
company is not part of a group124 nor is a related party or falls within the scope of the
stand-alone clause.125 The last exception to the applicability of the limitation of interest
deduction is the case when the company belongs to a group but its ratio of equity over
total balance sheet assets is not lower than 1%. This is the case compared to the overall
ratio for the group. This is also known as the escape clause.126
Italy’s system changed from the first of January 2008.127 Interest expenses are fully
deductible up to an amount equal to interest income accrued in the same tax period. In
116
The Swedish rules on limitations of interest deductions were introduced after the Swedish Supreme Administrative
Court had found that the Tax Avoidance Act was not applicable on certain types of tax planning arrangements, see Cases
RÅ 2007 ref 84 and ref 85, the so-called Industrivärden cases. For a deeper analysis of the Swedish GAAR, see
Rosander, Ulrika, General Klausul mot Skatteflykt, Ulrika Rosander and Jönköping International Business School,
Jönköping 2007. Her doctor‘s thesis analyzes General Anti-Avoidance Rules from the perspective of efficiency and legal
rights of individuals, comparing the General Anti-Avoidance Rules in Sweden, Canada and Germany.
117
The rule applies to corporations and Swedish partnerships.
118
See Swedish Government Bill, Prop 2008/09:65, p 1.
119
See Swedish Income Tax Act, chapter 24, section 10b, para 2.
120
See Swedish Income Tax Act, chapter 24, section 10c.
121
ITA, chapter 24, section 10d, para 1.
122
For further information on the subject please check Eugen Melhaf and IBFD – Europe – Corporate taxation - Country
Analyses Germany – 10.3.
123
Sec. 4h(2)a EStG
124
A company is deemed to belong to a group, if the company is or could be part of the consolidated group' s accounts
under German generally accepted accounting principles or the financial and business policy of the company can be
determined in uniformity with that of one or several other companies.
125
The stand-alone clause consists of when a company is only partially belonging to a group.
126
The escape clause can be found in , Sec. 4h(2)c EStG.
127
See the paper written Letizia Gianni and also check IBFD Europe – Corporate Taxation – Italy 2.7.5.
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case of excessive interest deduction, interest is only deductible up to 30% of the
EBIDTA128 which is derived through the core business of the company. Any excess of
interest expenses over the abovementioned 30% of the EBITDA may be carried forward
for deduction in the following unlimited number of tax periods. This is only possible to the
extent that the net interest expenses accrued in such tax periods are less than 30% of
EBITDA.129
The limitation on deduction of interest applies to holding companies. In this respect,
since dividends are not regarded, from an accounting perspective, as revenues derived
from the core business activity of the company, the EBITDA of "pure" holding companies
would typically be nil. In such a case, the excess interest expenses over interest income
could only be utilized by such holding companies to offset the taxable income of other
companies within the tax consolidation. Hence, holding companies may benefit from the
transfer by consolidated companies of their portion of 30% EBITDA that they did not use
to deduct their interest expenses.
Article 96 T.U.I.R. states that interest that is not deductible under the previously
mentioned rule, will not be reclassified as dividend in the hands of the recipient.
Therefore, interest payments remain fully taxable in the hands of the recipient, even
when they are not deductible from the taxable income of the borrowing company.
128
The EBITDA rule applies to interest derived from any transaction having a financial purpose, such as loans, bond
issues and financial leasing transactions (as far as the implicit interest component of the leasing instalment is concerned).
129
Excepted from the EBIDTA are banks and finance companies, insurance companies and parent companies of banking
groups are not subject to the above limitations with respect to interest expenses. They are entitled to deduct only 96% of
interest expenses accrued. In the case of companies included in a consolidation group, full deductibility of intra-group
interest is allowed up to the aggregate amount of interest payable to parties outside the group. par. 5-bis, art. 96, T.u.i.r.
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Comparisons/
COUNTRY GENERAL ANTI- THIN differences
AVOIDANCE CAPITALIZATION to the Dutch
RULES RULES system
130
NETHERLANDS (8b CITA) Article 10d CITA -
Applies to: companies
AUSTRIA At arm’s length - -

doctrine
Applicable:
companies
BELGIUM Article 18, 4° B.I.T.C 1 exception, no

- Applies to: counter proof
corporations and
natural persons
Concerns interest
Art. 198,11° B.I.T.C. paid to a favorable
Applies to: companies taxation of income
FRANCE - Article 39-1-3 FTC 2 stepts to determine

Applies to: companies amount; 3 exceptions;
and PE’s subject to related companies;
corporate taxation. threshold
GERMANY - - -
ITALY - - -
Safe harbor; ratio of

SPAIN - 20 TRLIS 3:1; not applicable
Applies to: companies when tax heavens
involved
SWEDEN - - -
UNITED STATES - - -
130
Because of dealing with the most common rules which limit interest deduction, 8b CITA is only mentioned to complete
the matrix. For further details on the applicability of this rule please check the enclosure.
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Comparisons/
COUNTRY STATUTORY PROVISIONS differences
to the Dutch
system
NETHERLANDS Article 10a and 10b CITA -

AUSTRIA - -
BELGIUM - -
FRANCE - -
Sec. 8a KStG in conjunction EBITDA; safe habour in

GERMANY with Sec. 4h EStG three cases; exception:
Applies to: businesses asset management
activities; carry forward
EBITDA; safe harbor; carry
ITALY Art. 96 T.U.I.R. forward; no reclassification
SPAIN - -
Art. ? Aims for specific activities;

SWEDEN Applies to: corporations and 3 exceptions
partnerships in Sweden
Criteria must be met;
UNITED STATES Sec. 163 (j) I.R.C. applies no matter treaty;
Applies to: corporations safe-harbor: 1,5:1 ratio
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3.5. INTERIM CONCLUSION
Regarding EC-law the State Secretary announced several times that Article 10a is in line
with EC law. According to the State Secretary the EC-law leaves it up to the Member
States to take real and proportional measures in order to combat excessive interest
deduction due to a lack of harmonization. From a tax planning point of view, planning is
possible in order to prevent the application of Article 10a CITA. Because of the fact that
there are certain requirements necessary, one can try to prevent getting into such a
position. When a taxpayer achieves this, taxes can be minimized because the interest
can be deducted from the profit. But is this CSR conform behavior? When considering
the definition given in the second chapter, it can be stated that this article does not
stimulate contra CSR behavior. This article sets criteria, when not fulfilling these criteria
interest is deductible and when not fulfilling these criteria, interest is not deductible.
Nevertheless, in both cases the law is applied and criteria are either fulfilled or not. This
article does therefore not stimulate CSR behavior but does not stimulate behavior which
is not in line with CSR.
Lack of information may be explained by the fact that 10b has been included recently,
which also explains the reason why issues specifically concerning international and
European tax law have not risen yet. Due to the fact that Article 10b is a pretty new rule,
it is hard to say how it can be used for tax planning and how this rule does or does not
stimulate CSR behavior.
In the light of the EC law, the State Secretary exclusively announced several times that
10d is in line with EC law as well as case law among others because the Netherlands
thin capitalization rule does not make a distinction between foreign and national
taxpayers. Considering the research question and its benchmarks, it can be said that
Article 10d CITA is a rule which can be used for tax planning. Due to the fact that the
ratio of 1:3 or 1:5 is calculated every year again, the ratio is manipulative due to which a
taxpayer can arrange how much debt and capital equity the balance sheet will show for
tax purposes. When planning the amount of equity correctly it can be questioned
whether the minimization of taxes which arises is CSR conform. This question arises
because CSR is a behavior from the taxpayer. As mentioned in chapter two the lower
limit of CSR is when a taxpayer fulfils the requirements provided by law. When a
company makes sure that its equity falls within the scope as included in Article 10d, the
taxpayer fulfils the requirements provided by law. Therefore this article does not
stimulate CSR unfriendly behavior.
All Wintercourse countries have provisions preventing the excessive deductions of

interest. The rules can be divided in three categories, namely general anti-avoidance
rules, thin capitalization rules, and specific statutory provisions.
Austria has an arm’s length approach to identify hidden equity capital and
subsequently to reclassify interest deductions to deem profits distribution based on a
general anti-avoidance doctrine, and applies it to all businesses. Specifically, for loans
made by shareholders, there is an arm’s length approach to determining the deduction.
Thus, so long as the rate on the debt instrument is arm’s length, then the interest
deduction will be respected.
Belgium, the Netherlands, Spain and France prevent excess interest deductions using
a thin-cap approach. Belgium has two thin cap regulations, one of which applies both to
corporations as well as natural persons, the other one applies strictly to corporations—
for the latter, it is irrelevant whether the lender is a related party. First, if a company is
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thinly capitalized, the interest deduction from a debt instrument is denied. The same
goes if the rate on the debt instrument exceeds the market rate of interest. In addition,
the second thin-cap rule denies interest deductions if the interest is paid to a party that is
subject to a favorable taxation on the interest income.
The thin cap rule in the Netherlands applies only to corporations; it is irrelevant whether
the lender is a related party. The ratio is 3:1 and for the application of this ratio the
residency of the lender is irrelevant.
In France the determination of the deductible interest amount is made in two steps. First,
it is necessary to identify the maximum deductible interest rate in accordance with the
provisions of the Article 39-1-3° of the FTC. This limitation applies to simple
shareholders and related companies, but related companies are allowed to apply the
“market rate” if it is higher. The first step is known as “the interest rate test”. Assuming
the interest rate on the related-party loan complies with the above test, interest on such
a loan is fully deductible, subject to the “leverage test”, which is a thin-cap test. Section
212 of the FTC provides for a series of tests.
A borrowing entity will be deemed thinly capitalized if the total amount of interest
incurred on related party loans, which is deductible under the interest rate test, exceeds
all three limits, namely (i) the debt/equity ratio, (ii) the interest/pre tax profit and
exceptional items ratio and, (iii) the interest received by affiliated companies/the interests
served to companies ratio. In that case, the portion of the interest on related party loans
which exceeds the higher of the above three limits will not be deductible from that year’s
taxable results (except if it does not exceed EUR 150.000) but may be carried forward
subject to certain conditions and subject to a five per cent discount for each year (after
the second year).
Spain provides for thin capitalization rules under the article 20 TRLIS ( Law 62/2003) :
dividends”. Spain uses the method of a fixed ratio in an objective system, recognized by
the OECD as a valuable way to determine debt financing. Consequently, the measure of
anti thin capitalization rules is enforceable when the debt or net equity ratio exceeds a
coefficient of 3. Thus, Spain explicitly denies interest deductions when debt exceeds a
particular ratio.
The United States, Sweden, the Netherlands and Germany disallow excess interest
deductions using specific statutes.
In the US, several criteria must be met to disallow an interest deduction for a
corporation. Initially, the rule only applies between related parties financing. Next, if a
related party lends money to a borrower, the interest deduction will be disallowed to the
extent the related party pays a lower tax rate than it would have if it were a typical US
taxpayer. This provision applies regardless of any treat that would legitimately lower the
corporation’s adjusted taxable income. Finally, the statute provides safe harbor for a
taxpayer that has a debt to equity ratio of 1.5-to-1 or lower i.e., for these taxpayers, there
will be no application of Section 163(j).
In January of 2009, Sweden enacted a statutory provision that denies interest
deductions, the so called “interest spins” resulting from intra-group financing. The rules
apply to corporations and Swedish partnerships. In addition, the rules stress that only
interest deductions arising from the defined activities are to be denied i.e., there will be
no denials for situations involving typical commercial activity. The new rules deny
interest deductions in three situations: (1) on internally funded acquisition of shares and
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certain similar securities from a company in the community of interest; (2) temporary
loans, in which an external loan is replaced with an internal loan; and (3) so-called
“back-to-back” situations in which a member of a group takes out a loan from an external
party on which another member of the group has a claim. There is no carry-forward of
denied interest deductions. Sweden provides a safe-harbor exception to its general
interest-stripping rule. Specifically, if the beneficial owner of the interest will be taxed in
its state of residence at least 10%, then the interest deduction in Sweden will be allowed.
Germany’s denial of interest deductions applies to all businesses except those that are
pure asset management activities—it is irrelevant whether the lender is a related party.
The rule provides that interest expense is deductible to the extent of interest income.
Any interest expense beyond that is deductible only to the extent of 30% of the earnings
before interest, taxes, depreciation and amortization (“EBITDA”). Deductions denied in
one taxable year may be carried forward indefinitely. However, if a business is
transferred or discontinued, the carry-forward interest will be lost.
Italy’s regulation is modeled after the German rule, and applies only to corporations,
without regard to the lender. There is a specific regulation to prevent excessive interest
deductions, but there is no longer a thin-cap regulation to prevent excessive leveraging.
The Netherlands also limits deduction of excessive interest with the applicability of
statutory rules. Article 10a CITA applies in situations when a related party grants a loan
to the company with respect to a certain situation. There is the possibility for counter
proof. Article 10b CITA applies on interest, paid for a loan with no fixed maturity or a
maturity of more than 10 years obtained from a related company. This article also
applies when no interest or an interest rate which is substantially lower than that which
would have been agreed between unrelated parties is concluded.
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CHAPTER 4: THE NETHERLANDS’ SYSTEM – EXIT TAXES
In this chapter the exit taxation of persons131 will be discussed. A distinction will be made
between the preserving assessment rules and the final payment rules. In this chapter a
brief description of these rules will be given, but also a description on their applicability in
relation to national, treaty and EC-law.
4.1. PERSONAL INCOME TAX ACT ARTICLE 2.8(2): THE PRESERVING ASSESSMENT132
When a preserving assessment is imposed, the claim from the Tax Authorities on
income which has been generated with the help of tax provisions is being preserved. On
what tax advantages the tax payer shall receive a preserving assessment is defined by
law and will be discussed below. In order for the Tax Authorities to actually levy this tax,
the taxpayer needs to act undesired by law within a certain time frame.133
4.1.1. ARTICLE 3.83(1) AND (2) PITA: PENSIONS
When a natural person emigrates who built up a pension in the Netherlands, a

preserving assessment will be imposed. Article 3.83 PITA aims at reclaiming given tax
provisions after one is no longer resident in the Netherlands.
In the Netherlands the provision “omkeerregeling” allows the taxpayer to build up
pension without being taxed for these pension claims, while instead the payment of
pensions will be taxed. When the taxpayer leaves the Dutch jurisdiction before the
pension is paid out, taxation of pension may be escaped.
Securing the previously mentioned tax claim is done by considering all pension claims
as wage the moment prior to emigration, and to impose a preserving assessment on this
income. Postponement of payment for this assessment is automatically provided for
emigrants to other Member States and unless the taxpayer acts as included in the law,
the preserving assessment will not be claimed by the Tax Authorities. The right to do so
expires after 10 years.134 It should be noted that in case of emigration the pension claims
will be concluded in the personal income tax for as far as these claims have been build
up in the Netherlands.135 Another situation which falls within the scope of this article is
when it is requested to move the buildup pension capital to a foreign insurance
company.
When the pension capital remains intact in case of emigration there is no necessity to
levy a preserving assessment. Therefore postponement of payment is provided under
the condition that the pension capital stays intact for the purpose it was build up, namely
financing a provision for old age in the form of pension terms. In this case there is a
preserving assessment.136
131
The Netherlands complied with the requirements following from the Directive 2005/19/EC on the 31st of May according
to the Dutch legislator, whereby the SE and the SCE are treated the same as a Netherlands NV.
132
After the judgment in the Lasteyrie case the State Secretary announced that the obligations to give guaranties for the
preserving assessment were removed in case of emigration within the EU (Brief Staatssecretaris van Financiën van 13
april 2004, nr. WDB 2004/188U, V-N 2004/21.8 )
133
NV, Kamerstukken II 1999/2000, 26 727, nr. 7, p. 341-342
134
This is concluded in Article 25(5) of the Collection of State Taxes Act 1990. Check also MvT, Kamerstukken II 1998/99,
26 727, nr. 3, p. 125; MvT, Kamerstukken II 1998/99, 26 728, nr. 3, p.61;
135
The tax payer was also fully liable to Dutch taxation.
136
Also check Article 25(5) of the Collection of State Taxes Act 1990 and Article 1(e) Uit.reg. IW 1990. Check also MvT,
Kamerstukken II 1998/99, 26 727, nr. 3, p. 125
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The parliamentary discussion on whether this article is in line with EC-law137 shows
that the legislator believes it is. Despite the judgment in the Laysterie case, the State
Secretary of Finance believes that Article 3.83 is in line with EC-law because of the
adjustments made. Though, comments can be made on the fact that this article is also
triggered in case the pension is transferred to an insurance company abroad. This
situation does not endanger the freedom of establishment, but the freedom of
movement. But for these situations postponement of payment is provided as well the
expiration of right to levy the preserving assessment.
Article 3.83 is not really a rule which can be used for tax planning neither minimizing
taxes. It is a rule however, which can be considered when planning future steps. Neither
is this a rule which does or does not stimulate CSR.
4.1.2. ARTICLE 4.16(1)(H): EMIGRATION OF THE SUBSTANTIAL SHAREHOLDER
A fictitious alienation of shares also occurs when a shareholder leaves the Netherlands;
better said when the natural person being a shareholder. Profit which arises from this
fictitious alienation is not actually taxed but a preserving assessment is levied providing
for a payment postponement for a maximum period of 10 years. This implies that the
preserving assessment will expire after a period of 10 years138 when certain conditions
are met.139
Article 4.16(1)(h), which is the rule concerning the fictitious alienation of shares and
the emigration of shareholders, is in line with EC-law according to the State Secretary.140
The preserving assessment which will be imposed in the case of the emigration of the
shareholder is in line with the Laysterie case from the ECJ.141 Also the Dutch Supreme
Court recently ruled that indeed the preserving assessment is in line with EC-law,
because the changes made in this article do not imply treaty-overwrite.142
Eventhough the N-judgment indicates that under certain conditions exit taxation from
substantial shareholders is in line with EC-law, De Kort states that exit taxation needs to
be reviewed because it is considered not to be in line with EC-law due to the fact that
there are more ways to tax an emigrant upon departure.143 In the seminar “Exitheffingen
in Europa” summary written by Smit, Janssen doubts whether the sole fact that a tax
claim rises is enough to cause a restriction in the light of EC-law. Janssen therefore
states that it is defendable that the Dutch rule is no restriction. He states that the
preserving assessment can be considered in line with EC-law because of fiscal
coherence which Member States are allowed to fill in looking at the conclusion of the AG
Kokott (in the N-case) and Geelhoed (in the Test Claimants in Class IV of the Act Group
Litigation).144
But does the abovementioned also mean that Article 4.16(1)(h) stimulates tax planning
to minimizing taxes as well as CSR behavior? This Article can stimulate tax planning to a
137
Nader rapport, Kamerstukken II 1998/99, 26 727, punt 61 and partially 62; NV, Kamerstukken II 1999/2000, 26 727, nr.
7, p. 71-72; NNV, Kamerstukken II 1999/2000, 26 727, nr. 17, p. 183.; NV, Kamerstukken II 1999/2000, 26 728, nr. 6, p.
11-12; MvT, Kamerstukken II 2003/04, 29 758, nr. 3, p.14 and 23.
138
Kamerstukken II 1996/97, 24 761, nr. 7, p. 20 (NV II).
139
Kamerstukken II 1998/99, 26 727, nr. A, p. 80-81 (advies Raad van State en nader rapport)
140
Kamerstukken II 1996/97, 24 761, nr. 7, p. 27-29 (NV II); Kamerstukken II 1996/97, 24 761, bijlage II, V-N 1996, p.
4024 (brief Staatssecretaris van Financiën van 15 oktober 1996
141
Besluit van 3 augustus 2004, nr. CPP2004/882M, BNB 2004/402; MvT, Kamerstukken II 2008/09, nr. 31 717, nr. 3, p.
11 (MvT).
142
HR 20 February 2009, nr. 43 760, LJN: BD5481; HR 20 February 2009, nr. 42 702, LJN: AZ2238 and HR 20 February
2009, nr. 42 701, LJN: AZ2232
143
J.W.J. de Kort, Ontwikkelingen emigratieheffing bij aanmerkelijk belang: N-zaak en verder, Weekblaf Fiscaal Recht
2008/551.
144
D.S.Smit, Verslag van het EFS-seminar “Exitheffingen in Europa”, WFR 2006/835.
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certain extent, namely when considering the consequences of this article and plan on it.
It is known when moving within the EU that the preserving assessment will be levied
when the taxpayer makes a forbidden move. However, when the taxpayer waits for ten
years, he can do whatever he wants without the consequences of being taxed. This
possibility does not stimulate CSR behavior, though mentioned should be that when a
taxpayer just complies with the requirements of the law, there is no behavior contrary to
CSR behavior.
4.2. EXIT TAXES: FINAL PAYMENT
The final payment rule is divided in two parts as a consequence of which it becomes
clearer that in case of transfer of assets from an entrepreneur in the Netherlands to a
foreign permanent establishment taxation will be levied.145
4.2.1. ARTICLE 3.60 PITA/ 15C CITA: IN CASE OF EMIGRATION
This article aims at taking away all doubt concerning the taxation of assets transferred to
a foreign permanent establishment of the entrepreneur. The difference between book
value and fair market value of these assets will be taxed. Normally taxation over
differences in these values takes place when determining the amount exempt foreign
profit. But when the taxpayer ceases being fully liable in the Netherlands, then the final
payment takes place on the general rule where the business is ceased. It concerns profit
which is to be allocated to the period in which the assets were part of the Dutch
entrepreneur. When the possibility lacks to tax this profit, then the base could be
eroded.146
Final payment occur when the growth of the value, which can be allocated to the
period the assets were taxed under Dutch tax law, leave the Dutch taxable base. This is
the case when assets are allocated abroad and when the taxpayer stops being resident
in the Netherlands. From that moment on the right to levy from the assets no longer lies
in the Netherlands but in the country where the taxpayer is resident. There is also the
possibility to final pay over a part of the assets transferred abroad.147
Article 15c CITA is connected to the rule which is included in Article 3.60 PITA and
aims on excluding doubt created in the case when a company moves its place of
effective management abroad if a final payment is required. This is the case so a final
payment is required on the assets which are transferred to a company abroad.148
This article also levies exit taxes in case assets are transferred to a PE abroad. At that
moment the difference between the fair market value and the book value of these assets
is the base for the exit taxation. Normally final payment occurs when it is determined
what the exempted foreign profit is and when a company ceases to exist a final payment
occurs on the base of the article concerning the cease the business operations. When a
profit is determined this is to be allocated to the period the company was liable to
taxation in the Netherlands. Therefore 15c is a rule which clarifies what happens in case
some assets are transferred. In case assets are transferred to a PE abroad it is
assumed that the taxpayer ceases to be liable to tax on the moment of the transfer or
after the transfer and the assets are assumed to have been transferred for the fair
145
MvT Kamerstukken II 1998/99, 26 727, nr. 3, p. 96
146
Kamerstukken II 1998/99, 26 727, nr. 3, p. 116 (MvT)
147
Kamerstukken II 1999/2000, 26 727, nr. 7, p. 463-464 (NV)
148
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market value. It should be noted that it concerns assets which still belong to a company
on the moment it stops being fully liable to tax in the Netherlands.
When a company transfers assets in a year to a foreign company there is no problem.
The Netherlands remains its right to levy taxes because the Netherlands levies
worldwide income which is done a moment prior to the transfer by ruling that there is a
fictitious transfer of assets to the PE abroad.149
Partial final payment on the base of Article 15c is required when assets remain in the
Netherlands while the taxpayer emigrates from the Netherlands. Unlike the final payment
rule, the taxpayer does not cease being fully liable to Dutch taxation in the case of partial
final payment. In this case the taxpayer is considered to have ceased its business for as
far as the assets are transferred to a PE. From that moment the transferred assets no
longer fall within the taxing scope of the Netherlands but within the scope of the country
to which the taxpayer is a resident.150
Article 15c CITA is connected to Article 3.60 of the PITA and aims at removing doubt if in
case a legal person places her place of effective management abroad the assets
transferred abroad to an enterprise driven abroad need to be taxed.151
For legal persons who are subject to the corporate income tax a comparable rule has
been included in the CITA. This rule also aims at preventing any doubt arising on the
obligation on final payment in case a company emigrates, after it has transferred its
assets abroad.
A difference between these regulations though is that Article 15c CITA for ascertaining
the domicile of the taxpayer is linked up with the applicability of national as well as treaty
law, while Article 3.60 PITA ascertains the domicile of a natural person according to
national law only.152
4.2.2. ARTICLE 3.61 PITA/ 15D CITA: IN CASE OF DEFINITELY CEASING THE BUSINESS
On the connection between Article 3.60 and 3.61 can be remarked that 3.61 is not
triggered in the situation when assets are transferred abroad and where Article 3.60 was
applied. The results on this asset transfer are already taxed on the base of Article 3.60.
Article 3.60 is focused on the occurrence of a specific situation while Article 3.61 is a
general formulated rule that functions as a sort of safety net of taxation and therefore
forms the tailpiece of the taxation of profit of the enterprise. This results in the taxation of
benefits of the company which have not been taxed on the base of other articles and are
therefore taxed in the year when the taxpayer ceases making taxable profit for Dutch tax
purposes.153
Article 15d, on the other hand, regulates the situation when a taxpayer ceases making
profit which is taxable by Dutch tax law. This Article therefore states that it causes
taxation of benefits which have not been taxed previously.154 Article 3.60 is part of the
final payment rules included in the Personal Income Tax Act 2001. These rules are
necessary to prevent certain benefits from not being taxed (in the Netherlands). It can
therefore happen that there are situations in which the rules on determining the annual
profit do not cause taxation of when it is uncertain if taxable moment will occur when
149
MvT, Kamerstukken II 1998/99, 26 727, nr. 3, p 116-18
150
NV, wetsvoorstel Wet inkomstenbelasting 2001, Kamerstukken II 1999/2000, 26 727, nr. 7, p. 463
151
152
Fiscale Encyclopedie De Vakstudie, Wet op de Vennootschapsbelasting 1969, artikelgewijs commentaar 15c,
aantekening 1.6.3.
153
Check Article 3.61(1) PITA; MvT, Kamerstukken II 1998/99, 26 727, nr. 3, blz. 118
154
MvT, Belastingplan 2002-II Economische infrastructuur, Kamerstukken II 2001/02, 28 034, nr. 3, blz. 32
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applying these rules. To prevent base erosion rules like Article 3.60 and 3.61 have been
included into (personal) tax law.155
In the Dutch literature the question has been asked whether the final payment provisions
contained in article 3.60 is in conflict with double tax treaties concluded between the
Netherlands and countries worldwide. It can be the case that the Netherlands can be
convicted of treaty override because of the Netherlands singly taking over taxation rights
which have been given up when concluding treaties before 2001. The exit taxation could
then be in conflict with the good faith of the treaty partners, and if so the final payments
should have no applicability.156
It is unknown whether Articles 3.60 and 3.61 PITA (are in line with EC-law, focusing on
the Freedom of Establishment. After the ECJ-judgment of the Lasteyrie the discussion
rose again whether the previously mentioned Articles were in line with EC-law. In this
judgment was ruled that the French exit taxation, to what the Dutch system is
comparable, was not in line with EC-law. This judgment triggered changes in the Dutch
preserving assessment system. The State Secretary of Finance however indicated that
Articles 3.60 and 3.61 needs no adaptation and are therefore in line with EC-law.157
However, the discussion started again after the ECJ-judgment in the N-case. In this case
the ECJ ruled that the preserving assessment was hindering the Freedom of
Establishment. It may be noted that in the Dutch literature in contrary to the opinion of
the State Secretary some believe that Articles 3.60 and 3.61 are not in line with EC-law
due to the fact that the preserving assessment regulations have the postponement of
payment while the Article 3.60 and 3.61 PITA do not; they require (an immediate) final
payment.158 The Court of Arnhem159 judged that Article 15d was in line with EC-law and
not in conflict with the Freedom of Capital as included in Article 56 EC-treaty, because
according to the court Article 15d taxation takes place the moment a taxpayer ceases to
generate taxable profit in the Netherlands. The transfer of the capital from the
Netherlands to another country is for the applicability of Article 15d not relevant.160
In literature opinions can be found that these final payment rules are not in line with
EC-law. Kavelaars writes in his article that the final payment rules are not in line with
EC-law of the justification of coherence does not hold stand because another
proportional possibility is available.161 Te Boekhorst spoke on the EFS-Seminars well
and stated that the final payment rules are not in line with the Freedom of
Establishment.162 There is a cross-border activity and beside to this the aim and purpose
of these rules is to secure the tax claim and maybe preventing abuse. But like Kavelaars
Te Boekhorst believes that there are more proportional ways in achieving the
abovementioned goals. Merkus also believes that the final payment rules are not in line
155
Check Article 3.61(1) PITA; MvT, Kamerstukken II 1998/99, 26 727, nr. 3, blz. 118
156
Vakstudie Encyclopedie Inkomstenbelasting 2001, commentaar 3.60, aantekening 1.9
157
Brief Staatssecretaris van Financiën 13 april 2004, nr. WDB2004/188U, V-N 2004/21.8; Schriftelijke antwoorden van
de Staatssecretaris van Financiën op 14 december 2004, op vragen vanuit de Eerste Kamer bij de behandeling van de
wetsvoorstellen Belastingplan 2005 (29 767), Overige fiscale maatregelen 2005 (29 758) en Fiscale onderhoudswet 2004
(29 678). Bijvoegsel Handelingen I 2004/05, nr. 10
158
Kamerstukken II 2004/05, 29 758, nr. 7, p. 24 (NV, Overige fiscale maatregelen 2005); Brief Staatssecretaris van
Financiën van 9 februari 2005, nr.WDB2005/77U, V-N 2005/11.7.
159
Hof Arnhem 19 November 2008, nr. 08/00004 and 08/00034, LJN: BG6669, point 4.6.
160
In the judgment of ECJ 16 December 2008, case C-210/06 (Cartesio) the ECJ ruled that the Member State, as in Daily
Mail, that “As Community law now stands, Articles 43 EC and 48 EC are to be interpreted as not precluding legislation of
a Member State under which a company incorporated under the law of that Member State may not transfer its seat to
another Member State whilst retaining its status as a company governed by the law of the Member State of incorporation.”
161
P. Kavelaars, Grensoverschrijdende zekerheidstellingen europeesrechtelijk getoetst, WFR 2203/575 and note Reactie
Vakstudie ECJ 21 November 2002,case C-436/00, VN 2003/12.5
162
D.S.Smit, Verslag van het EFS-seminar “Exitheffingen in Europa”, WFR 2006/835.
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with EC-law. He states that when a legal person emigrates from a real seat country to
another state, liquidation of this company is the consequence and therefore exit taxation.
Merkus finds that the cases Lasteyrie and N show that exit taxation hinder the freedom
of etablishment, but also justified when complying with the efficiency and proportionality
tests. Because of the lack of harmonization among the corporate laws in the EU, the
final payment rules will not be considered hindering because of the Daily Mail case.
Though, when looking at the Dutch legislation, other possibilities to levy exit taxes are
available.163
The final payment rules are not really rules which make it possible to start tax planning
in order to minimize taxes. It might even be considered to not establish a company in the
Netherlands due to this rule, but not in order to minimize your taxes. CSR is however,
from the side of the government not present. The Tax Authority wants a taxpayer to pay
the minimum in taxes but in this case does not even consider another option for
businesses leaving the Netherlands. The final payment rule is harsh because the Tax
Authority wants to see cash upon departure while nothing has been sold or estranged
which might cause cash flow.
4.3. EXIT TAXES AND OTHER TAX SYSTEMS
The transfer of the tax residence by moving from one state to another can result in a
reduced tax collection and is a topic which concerns most governments. As a result,
many states apply exit tax provisions upon the emigration of the taxpayer.
The country which will not be included in the comparison is Austria.164 The country
which does not levy exit taxes from individuals is France. It has eliminated this exit tax
after the Lasteyrie du Saillant-judgment. Italy, in contrary to the rest of the countries
which will be shortly explained below, makes no distinction between legal en natural
persons. It applies its rule of exit taxation to all subjects who carry on a business activity,
such as individual businesses, partnerships and corporations.165 The United States only
levies exit taxes from natural persons, according to section 877A, when one renounces
his citizenship. The taxpayer will be taxed as if he sold all his properties at fair market
value.166 The United States do not levy an exit tax when a company relocates because
the company is considered an US company and therefore subject to US taxation.167
The remaining countries do make a distinction between the taxation of legal and
natural persons due to what exit taxation will be reviewed so.
Personal Income Tax

Among the countries which raise exit taxes from individuals a distinction can be made
among the taxation of pensions and hidden reserves.
Countries which levy exit taxation on pensions are Belgium and the Netherlands.
163
M.J.C. Merkus, Emigratieheffing in de vennootschapsbelasting; Art. 15c en 15d Wet Vpb getoetst aan het EG-Verdrag,
WFR 2006/1293.
164
The Austrian only focused on the limitation of interest rules in Austria in his paper.
165
This choice of the Italian legislator may be caused by the fact the rules concerning the determination of the different
income categories for individuals and the integration with criteria of territorial taxation consent the Italian State to keep a
tax right on individual´s goods, also after the departure.
166
Sec. 877 A (a)(1) I.R.C.
167
Section 7874 operates by treating an “expatriated entity” as a domestic corporation for all purposes of the IRC. Check
I.R.C. § 7874(b).
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Belgium has an emigration-clause included in Article 364bis B.I.T.C. This article states
that “The payment or attribution of lump-sum distributions from insurance contracts or
pension savings to a taxpayer who has previously transferred his or her residence or the
primary location of his or her assets outside the EEA is deemed to have taken place on
the day preceding that transfer and imposed in Belgium.”
The article finds its origin in the recapture of previous tax deductions. Under certain
conditions, the Belgian taxpayer is allowed to deduct pension payments or contributions
for long term savings from his due taxes.168 That advantage is offset by the taxation of
the later distribution to the taxpayer.169 If the taxpayer migrates before that distribution,
he will not only benefit from the tax deductions, but he will possibly also dodge the
taxation of the later distribution.
The hidden reserves are taxed in the countries the Netherlands, Germany, Spain, the
US, Italy and Sweden.
In German taxation, sec. 6 ASTG levies exit taxation from individuals emigrating where
no distinction is made between the departure to other Member States and third
countries. The regulation of sec. 6 ASTG applies to hidden reserves in case of a
fictitious sale of corporate shares. In order to impose exit taxation the taxpayer must
have been directly or indirectly participating in a corporation for at least 1% of the shares
in the past five years prior to the fictitious alienation.
Sec. 6 (4) ASTG allows the taxpayer to request for a respite with the consequence that
the tax due needs to be paid during a period of maximally five years. An immediate
payment would only be possible in connection with heavy detriments for the taxpayer.
The taxpayer can attest that an immediate payment170 is too harsh due to which it can
be possible to pay the taxes in installments by way of security.171
If the taxpayer is a citizen of one of the EU Member States or a state of the EEA and
becomes an unlimited taxpayer in one of these countries amending his German
residency, the tax due deferred free of interest without any payments and securities for
an indefinite period.172
In Spain Article 14.3 IRPF, applies when residency is changed. The taxpayer will
therefore lose Spanish residency and all incomes subject to taxation will have to be
integrated into the tax base corresponding to the last tax period that should be declare.
Secondly, Article 8.2 IRPF provides an extended tax liability. This is an anti-abuse
clause, which penalizes the taxpayer who changes Spanish fiscal residence for a tax
heaven. As a result Spanish fiscal residence is kept and consequently the tax is paid
over a period of the next four years following the departure and operates as if it were an
extension of fiscal residence.
Thirdly, Article 88.3 TRLIS makes a provision concerning associates who change fiscal
residence to aboard lose the benefit of the usual differed taxation of the operations of
mergers, absorption, and divisions total or partial planned in article 88. This rule
penalizes the associate who must pay the integral tax at the moment of migration.
In Swedish tax law there are rules for individuals regarding the transfer of assets to a
price below the market value. In cases when assets are transferred to a company within
the EEA, then there is no taxation upon the transfer. When the assets are transferred to
the company, those assets are deemed to be sold for a consideration equivalent to the
asset’s cost basis or to the market value, whichever is lower. This means that it is
168 1-16
Article 145 B.I.T.C.
169
Article 34 B.I.T.C.
170
Rüsken, Klein AO, § 222 para 2.
171
Wassermayer ASTG, § 6 para. 187
172
Wassermayer ASTG, § 6 para. 206
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possible to transfer unrealized value to the acquiring company, without leading to any
taxation in the transfer phase. However, this does not apply when the asset is
transferred to a company outside the EEA, because then taxation will be imposed. The
provisions on taxation in such cases aim at situations where a natural person transferred
his assets, at a price below the market value of the assets, to a Swedish or a foreign
company in which the transferor or his kin, directly or indirectly, holds shares. In those
cases exit taxation is imposed.
Corporate Income Tax

Exit taxation of companies can be explained differently from the taxation of individuals in
the case of the Netherlands, Italy, the US, Spain, Belgium, Germany and Sweden.
Concerning Belgium can be said that any company having its registered office, main
establishment or headquarters situated in Belgium and being subjected to the Belgian
corporation tax173 that relocates its registered office, main establishment or headquarters
abroad will be deemed to be, as by fiscal fiction,174 a company in process of dissolution
and liquidation.175 As a direct consequence of that fiction the profit of the company will
be determined, including (hidden) (capital) gains,176 and taxed likewise,177 even though
the gains are not effectively realized. The reasoning behind this “taxation-bill at the
border”178 is the following: in order to be able to tax everything that is built up in Belgium,
the Belgian tax authorities need to be able to tax these gains when they are still within
their reach of power. Those gains were made in Belgium and would thus best be taxed
in Belgium (in respect of the quid pro quo-principle).179
Germany levies exit taxes from corporations. This is included in paragraph 12 of the
KStG. Germany, however makes a distinction between departure to other Member
States, states of the EEA180 and third countries.181
If a corporation relocates its domicile or place of management and retires from the full
tax liability, Germany applies rules which prevent Germany from losing the right to tax
the assets of the corporation. This is included in sec. 12 (3) KSTG due to which there is
a fictitious profit realization. The sole fact relocation leads to the taxation of hidden
reserves as in the case of a liquidation182, as can be concluded from the real seat
corporate system which applies in Germany.183
Regarding Swedish companies, there are also exit rules stating that taxation will be
imposed when assets are transferred from one part of a business to another part, when
that receiving business, but not the business making the transfer, is exempt Swedish
taxation due to a tax treaty. The general rule implies tax on transfers of assets, when
such transactions are made without compensation, or with a compensation that is below
the market value of the asset. Taxation is imposed as if the asset was sold at a price
equal to its market value. The exit tax is imposed on the difference between the fair
market value and the tax residual value.
173
Article 2,5° juncto 179 B.I.T.C.
174
P. BEGHIN and I. VAN DE WOESTEYNE, Handboek vennootschapsbelasting 2008-2009, Antwerpen, Intersentia,
2008, 7.
175
Article 210, §1, 4° B.I.T.C.
176
Article 210, §1, 4° juncto 208 and 209 B.I.T.C.
177
Article 183 B.I.T.C.
178
W. PIOT, “Fiscale implicaties van zetelverplaatsing naar en vanuit België”, A.F.T. 1997, afl.1, 14; E. VAN DER
BRUGGEN, “Het fiscaal regime van naar België verplaatste vennootschappen”, T.R.V. 1994, 500.
179
R. MESSIAEN, “Internationale zetelverplaatsing en de emigratiebelasting ex artikel 210 § 1, 4° WIB 1992: is de exit-tax
verenigbaar met de hogere normen?” T.F.R. 2005, afl. 287, 733.
180
Sec. 12, para 1, KSTG.
181
Sec. 12, para. 3 KSTG.
182
Frotscher KSTG, § 12 para. 154.
183
Frotscher KSTG, § 12 para. 157.
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Exit taxes for companies are levied in Spain on the base of Articles 17.1 in conjunction
with and 26.2.b of the TRLIS. Article 26.2.b enunciates that the taxable period ends
when a company changes its Spanish residency to a foreign residency. So in this case,
Article 17.1 establishes that except if the incomes stay allocated to a permanent
establishment in Spain, the difference between the accounting value and the market
value of the elements of patrimony must be integrated in the taxation base when they
are the property of a company which has its residence in Spain and which decides to
transfer its residence aboard. There is a requirement in the transfer of assets from the
domestic parent to a foreign permanent establishment which is stated in article 16.3.j
TRLIS. Indeed the relation between a domestic company and its foreign permanent
establishment is under the application of rules for parent operations (article 16 and the
following articles) and by consequent, this kind of transfer of assets leads to the
obligation to include the difference between acquisition price and market value in the tax
base of the corporate tax in the year the assets were transferred.
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COUNTRY PERSONAL INCOME TAXATION Comparisons/
differences
to the Dutch
PENSIONS HIDDEN system
RESERVES
NETHERLANDS Article 3.83 PITA Article 4.16 (1)(h); -

3.60 and 3.61 PITA
AUSTRIA NO INFORMATION; the paper by the Austrian student only contained

limitation on excessive interest deduction rules.
Taxation of lump sum
BELGIUM Art. 364-bis B.I.T.C. distributions of
pension savings
FRANCE - - -
GERMANY Sec. 6 ASTG Taxation of corporate

shares
Taxation of latent
ITALY 166 T.U.I.R. capital gains on
assets
Unrealized income of
individual; aims for
SPAIN Article 14.3 IRPF companies moving to
Article 8.2 IRPF a tax haven; 4 years
the taxpayer will be
followed
Transfer of assets/
SWEDEN Chapter 53 ITA capital gains
Taxation of hidden
UNITES STATES I.R.C. § 877 A reserves
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COUNTRY CORPORATE CORPORATE Comparisons/
SYSTEM INCOME TAXATION differences
to the Dutch
system
NETHERLANDS Incorporation Articles: 15c and 15d -

CITA
AUSTRIA NO INFORMATION; the paper by the Austrian student only contained

limitation on excessive interest deduction rules.
210, par. 1, 4e in No specific exit
BELGIUM ? conjunctin with 208 and taxation rule on
209 B.I.T.C. transfer assets
Taxation over
FRANCE Real seat 221 FTC; 210 A, 210B emigration,
and 210 C FTC reorganization and
M&A
Taxation of shares;
GERMANY Real seat 12 KSTG deferral for
unlimited time
Taxation of
ITALY ? Art. 166 T.U.I.R. businesses
No taxation on
SPAIN Real seat articles 17.1 and 26.2.b transfer assets;
TRLIS
assets are
SWEDEN Incorporation transferred from
? one part of a
business to another
part which is
exempt of Swedish
taxation
Due to I.R.C. Sec.
UNITED STATES Incorporation - 7874, companies
are treated as if
they are an US
citizen.
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4.4. Interim conclusion
The parliamentary discussion on whether 3.83 PITA is in line with EC-law shows that the
legislator believes it is. Despite the judgment in the Lasteyrie case, the State Secretary
of Finance believes that Article 3.83 is in line with EC-law because of the adjustments
made. Though, comments can be made on the fact that this article is also triggered in
case the pension is transferred to an insurance company abroad. This situation does not
endanger the freedom of establishment, but the freedom of movement. But for these
situations postponement of payment is provided as well the expiration of right to levy the
preserving assessment.
It is unknown whether Articles 3.60 PITA (15c CITA) and 3.61 PITA (15d CITA) are in
line with EC-law, focusing on the freedom of establishment. After the ECJ-judgment of
the Lasteyrie the discussion rose again whether the previously mentioned Articles were
in line with EC-law. In this judgment was ruled that the French exit taxation, to what the
Dutch system is comparable, was not in line with EC-law. This judgment triggered
changes in the Dutch preserving assessment system. The State Secretary of Finance
however indicated that Articles 3.60 and 3.61 needs no adaptation and are therefore in
line with EC-law. However, the discussion started again after the ECJ-judgment in the
N-case. In this case the ECJ ruled that the preserving assessment was hindering the
Freedom of Establishment. It may be noted that in the Dutch literature in contrary to the
opinion of the State Secretary some believe that Articles 3.60 and 3.61 are not in line
with EC-law due to the fact that the preserving assessment regulations have the
postponement of payment while the Article 3.60 and 3.61 PITA do not; they require (an
immediate) final payment.
The final payment rules are not really rules which make it possible to start tax planning in
order to minimize taxes. It might even be considered to not establish a company in the
All Wintercourse countries have provisions to raise exit taxes. A distinction can be made
between the exit taxation of natural persons and that of the legal persons. Italy’s system,
however, falls within the scope of neither and taxes businesses.
The countries which levy exit taxes from persons are all countries except for France.
This country eliminated its exit tax rule after the Lasteyrie-judgment. From here a
distinction is made between rules which cause taxation of pensions and hidden
reserves.
Only two countries raise exit taxes from pensions, and these countries are the
Netherlands and Belgium. Belgium applies the emigration-clause due to which the
taxpayer, who has previously transferred his or her residence or the primary location of
his or her assets outside the EEA, will be taxed over lump-sum distributions from
insurance contracts or pension savings to the taxpayer will be deemed to have taken
place on the day preceding that transfer and taxed. However, these are the only items
subject to an exit tax. The article finds its origin in the recapture of previous tax
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deductions. Under certain conditions, the Belgian taxpayer is allowed to deduct pension
payments or contributions for long term savings from his due taxes; that advantage is
offset by the taxation of the later distribution to the taxpayer. If the taxpayer migrates
before that distribution, he will not only benefit from the tax deductions, but he will
possibly also dodge the taxation of the later distribution. Belgium prevents this form of
base erosion in its legislation, but only with regard to transfers outside the EEA.
This ratio behind the prevention of base erosion also applies for the Dutch exit taxation
concerning pensions. Under Dutch law, pension funds are taxed at distribution. Thus,
absent an exit tax, pension accumulations may go untaxed forever. Because of this
article 3.83(1) PITA states that, when a natural person emigrates from the Netherlands,
a tax is imposed on the pension accumulation. All pension claims are fictitiously taxes as
wages at the moment immediately prior to emigration. Belgian tax is levied immediately
and without exception, but in the Netherlands there is automatically postponement of
payment for this preserving assessment.
The Dutch legislator wants to ensure that hidden reserves build up in the Netherlands
are taxed while a person is still a resident. This is because taxation is related to
residence—once a person leaves the country, they will no longer be subject to the taxing
power. The United States levies exit tax when one renounces his citizenship. In almost
all the Countries hidden reserves are taxed at the exit. While the Spanish exit tax
concerns all the unrealized income of the individual, German exit taxes concern only the
hidden reserves of corporate shares; the Italian one is levied from the latent capital gains
on the assets of the transferred business (also shares, if they are part of the business
complex), according to a fictitious realization, and the funds in tax suspension. Swedish
exit tax, applicable only for the transfer of assets to a Swedish or foreign company
outside EEA, is levied from the capital gains on transferred assets.
By having a closer view on the regulations, it becomes clear that there are a lot of
similarities between the exit taxes on individuals in Austria and Germany. Both systems
work with separate provisions and try to avoid conflicts with the fundamental freedoms of
the EC Treaty by constituting rules with legal consequences, which depend on the
country the individual relocates to. Here both countries differentiate regarding the legal
consequences between EU/EEA Member States and third countries.
Such a difference is also existent in Spain, but not regarding EU and third countries.
Here the law constitutes a regulation, which targets the exit into tax haven. The article
8.2 IRPF provides an extended tax liability, which penalizes the taxpayer who changes
his Spanish fiscal residence for a tax haven. As a result the Spanish tax residence is
kept for four years following the departure. Since Cyprus and Lichtenstein are also
covered by the term tax haven, a problem with the ECT might be existent.
Apart from Germany, as it has been explained, in the majority of cases the exit tax is
levied immediately on the moment prior to departure. The Netherlands however levies
an exit tax (in certain situations) based on the preserving assessment. Payment
postponement is automatically provided when a person leaves for another Member
State.
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Chapter 5: Conclusions and recommendation
LIMITATION OF EXCESSIVE INTEREST DEDUCTION
Domestic rules and the benchmarks

Regarding EC-law the State Secretary announced several times that Article 10a is in line
with EC law. According to the State Secretary the EC-law leaves it up to the Member
States to take real and proportional measures in order to combat excessive interest
deduction due to a lack of harmonization.
From a tax planning point of view, planning is possible in order to prevent the application
of Article 10a CITA. Because of the fact that there are certain requirements necessary,
one can try to prevent getting into such a position. When a taxpayer achieves this, taxes
can be minimized because the interest can be deducted from the profit. But is this CSR
conform behavior? When considering the definition given in the second chapter, it can
be stated that this article does not stimulate contra CSR behavior. This article sets
criteria, when not fulfilling these criteria interest is deductible and when not fulfilling these
criteria, interest is not deductible. Nevertheless, in both cases the law is applied and
criteria are either fulfilled or not. This article does therefore not stimulate CSR behavior
but does not stimulate behavior which is not in line with CSR.
Lack of information on Article 10b CITA may be explained by the fact that 10b CITA
has been included recently, which also explains the reason why issues specifically
concerning international and European tax law have not risen yet. Due to the fact that
Article 10b is a pretty new rule, it is hard to say how it can be used for tax planning and
how this rule does or does not stimulate CSR behavior.
In the light of the EC law, the State Secretary exclusively announced several times that
10d is in line with EC law as well as case law among others because the Netherlands
thin capitalization rule does not make a distinction between foreign and national
taxpayers. Considering the research question and its benchmarks, it can be said that
Article 10d CITA is a rule which can be used for tax planning. Due to the fact that the
ratio of 1:3 or 1:5 is calculated every year again, the ratio is manipulative due to which a
taxpayer can arrange how much debt and capital equity the balance sheet will show for
tax purposes. When planning the amount of equity correctly it can be questioned
whether the minimization of taxes which arises is CSR conform. This question arises
because CSR is a behavior from the taxpayer. As mentioned in chapter two the lower
limit of CSR is when a taxpayer fulfils the requirements provided by law. When a
company makes sure that its equity falls within the scope as included in Article 10d, the
taxpayer fulfils the requirements provided by law. Therefore this article does not
stimulate CSR unfriendly behavior.
Comparison to other countries’ tax system

All Wintercourse countries have provisions preventing the excessive deductions of
interest. The rules can be divided in three categories, namely general anti-avoidance
rules, thin capitalization rules, and specific statutory provisions.
Austria has an arm’s length approach to identify hidden equity capital and
subsequently to reclassify interest deductions to deem profits distribution based on a
general anti-avoidance doctrine, and applies it to all businesses. Specifically, for loans
-37-
made by shareholders, there is an arm’s length approach to determining the deduction.
Thus, so long as the rate on the debt instrument is arm’s length, then the interest
deduction will be respected.
Belgium, the Netherlands, Spain and France prevent excess interest deductions using
a thin-cap approach. Belgium has two thin cap regulations, one of which applies both to
corporations as well as natural persons, the other one applies strictly to corporations—
for the latter, it is irrelevant whether the lender is a related party. First, if a company is
thinly capitalized, the interest deduction from a debt instrument is denied. The same
goes if the rate on the debt instrument exceeds the market rate of interest. In addition,
the second thin-cap rule denies interest deductions if the interest is paid to a party that is
subject to a favorable taxation on the interest income.
The thin cap rule in the Netherlands applies only to corporations; it is irrelevant whether
the lender is a related party. The ratio is 3:1 and for the application of this ratio the
residency of the lender is irrelevant.
In France the determination of the deductible interest amount is made in two steps. First,
it is necessary to identify the maximum deductible interest rate in accordance with the
provisions of the Article 39-1-3° of the FTC. This limitation applies to simple
shareholders and related companies, but related companies are allowed to apply the
“market rate” if it is higher. The first step is known as “the interest rate test”. Assuming
the interest rate on the related-party loan complies with the above test, interest on such
a loan is fully deductible, subject to the “leverage test”, which is a thin-cap test. Section
212 of the FTC provides for a series of tests.
A borrowing entity will be deemed thinly capitalized if the total amount of interest
incurred on related party loans, which is deductible under the interest rate test, exceeds
all three limits, namely (i) the debt/equity ratio, (ii) the interest/pre tax profit and
exceptional items ratio and, (iii) the interest received by affiliated companies/the interests
served to companies ratio. In that case, the portion of the interest on related party loans
which exceeds the higher of the above three limits will not be deductible from that year’s
taxable results (except if it does not exceed EUR 150.000) but may be carried forward
subject to certain conditions and subject to a five per cent discount for each year (after
the second year).
Spain provides for thin capitalization rules under the article 20 TRLIS ( Law 62/2003) :
dividends”. Spain uses the method of a fixed ratio in an objective system, recognized by
the OECD as a valuable way to determine debt financing. Consequently, the measure of
anti thin capitalization rules is enforceable when the debt or net equity ratio exceeds a
coefficient of 3. Thus, Spain explicitly denies interest deductions when debt exceeds a
particular ratio.
The United States, Sweden, the Netherlands and Germany disallow excess interest
deductions using specific statutes.
In the US, several criteria must be met to disallow an interest deduction for a
corporation. Initially, the rule only applies between related parties financing. Next, if a
related party lends money to a borrower, the interest deduction will be disallowed to the
extent the related party pays a lower tax rate than it would have if it were a typical US
taxpayer. This provision applies regardless of any treat that would legitimately lower the
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corporation’s adjusted taxable income. Finally, the statute provides safe harbor for a
taxpayer that has a debt to equity ratio of 1.5-to-1 or lower i.e., for these taxpayers, there
will be no application of Section 163(j).
In January of 2009, Sweden enacted a statutory provision that denies interest
deductions, the so called “interest spins” resulting from intra-group financing. The rules
apply to corporations and Swedish partnerships. In addition, the rules stress that only
interest deductions arising from the defined activities are to be denied i.e., there will be
no denials for situations involving typical commercial activity. The new rules deny
interest deductions in three situations: (1) on internally funded acquisition of shares and
certain similar securities from a company in the community of interest; (2) temporary
loans, in which an external loan is replaced with an internal loan; and (3) so-called
“back-to-back” situations in which a member of a group takes out a loan from an external
party on which another member of the group has a claim. There is no carry-forward of
denied interest deductions. Sweden provides a safe-harbor exception to its general
interest-stripping rule. Specifically, if the beneficial owner of the interest will be taxed in
its state of residence at least 10%, then the interest deduction in Sweden will be allowed.
Germany’s denial of interest deductions applies to all businesses except those that are
pure asset management activities—it is irrelevant whether the lender is a related party.
The rule provides that interest expense is deductible to the extent of interest income.
Any interest expense beyond that is deductible only to the extent of 30% of the earnings
before interest, taxes, depreciation and amortization (“EBITDA”). Deductions denied in
one taxable year may be carried forward indefinitely. However, if a business is
transferred or discontinued, the carry-forward interest will be lost.
Italy’s regulation is modeled after the German rule, and applies only to corporations,
without regard to the lender. There is a specific regulation to prevent excessive interest
deductions, but there is no longer a thin-cap regulation to prevent excessive leveraging.
The Netherlands also limits deduction of excessive interest with the applicability of
statutory rules. Article 10a CITA applies in situations when a related party grants a loan
to the company with respect to a certain situation. There is the possibility for counter
proof. Article 10b CITA applies on interest, paid for a loan with no fixed maturity or a
maturity of more than 10 years obtained from a related company. This article also
applies when no interest or an interest rate which is substantially lower than that which
would have been agreed between unrelated parties is concluded.
Interest deduction is limited in all countries in the case of thinly capitalized companies.
The analysis shows that there are different concepts to achieve such a limitation. The
first group uses the general anti avoidance rules to prevent tax base erosion. A second
group of countries applies special thin capitalization rules. A third group applies special
regulations on interest deduction. The scope of applicability often differs. Some countries
aim to prevent tax base erosion with regard to related parties only whereas other
countries try to prevent tax base erosion in general. Thus, the effectiveness of national
provisions cannot be measured in general and therefore it is not possible to identify a
preferential tax regime. In conclusion, the national provisions on the limitation on interest
deduction and their effectiveness on tax base erosion has to be seen in relation to the
targets of the national legislator.
In addition, the discussion of the national regulations shows that one of the major issues
playing part concerning the limitation of interest deduction is the distinction between
equity and debt capital. As a consequence of this classification, the remuneration for
debt capital (interest) is tax deductible in all the analyzed countries whereas the
remuneration for equity capital (dividends) is not tax deductible. A possible solution to
-39-
prevent tax base erosion by the means of interest deduction could be the equality of
debt and equity capital for tax purposes. When striving for simplicity previous mentioned
option is a solution. The decision on how to finance a company should not be influenced
by tax issues. Yet, this is where the question arises what the effect of this option is on
tax planning and CSR. Even though CSR is an attitude a company chooses to apply or
not, this option will not stimulate CSR behavior or behavior against CSR. Tax planning,
on the other, will be stimulated. When the Netherlands chooses to eliminate the
differences in capital and the rest of Europe will stick to its current system, this will
stimulate international tax planning in order to minimize taxes for the group.
However, keeping the judgment of 28th of April 2009 ruled by Court Arnhem, in mind it is
also imaginable to eliminate some rules (as in line with current developments) and apply
“fraus legis” next to an earning stripping rule or a thin cap rule. In this way CSR conform
behavior is stimulated because taxpayers will be more cautious and tax planning will be
harder due to the insecurity of the applicability of “fraus legis”.
EXIT TAXATION
Domestic rules and the benchmarks

The parliamentary discussion on whether 3.83 PITA is in line with EC-law shows that the
legislator believes it is. Despite the judgment in the Lasteyrie case, the State Secretary
of Finance believes that Article 3.83 is in line with EC-law because of the adjustments
made. Though, comments can be made on the fact that this article is also triggered in
case the pension is transferred to an insurance company abroad. For abovementioned
situations, however, postponement of payment is provided. Because of the emigration to
another EU Member State the expiration of right to levy the preserving assessment
expires after 10 when all criteria are met for a period of ten years.
It is unknown whether Articles 3.60 PITA (15c CITA) and 3.61 PITA (15d CITA) are in
line with EC-law, focusing on the freedom of establishment. After the ECJ-judgment of
the Lasteyrie the discussion rose again whether the previously mentioned Articles were
in line with EC-law. In this judgment was ruled that the French exit taxation, to what the
Dutch system is comparable, was not in line with EC-law. This judgment triggered
changes in the Dutch preserving assessment system. The State Secretary of Finance
however indicated that Articles 3.60 and 3.61 needs no adaptation and are therefore in
line with EC-law. However, the discussion started again after the ECJ-judgment in the
N-case. In this case the ECJ ruled that the preserving assessment was hindering the
Freedom of Establishment. It may be noted that in the Dutch literature in contrary to the
opinion of the State Secretary some believe that Articles 3.60 and 3.61 are not in line
with EC-law due to the fact that the preserving assessment regulations have the
postponement of payment while the Article 3.60 and 3.61 PITA do not; they require (an
immediate) final payment.
The final payment rules are not really rules which make it possible to start tax planning in
order to minimize taxes. It might even be considered to not establish a company in the
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Comparison to other tax systems184
Income taxation
Germany, applying Sec. 6 ASTG, tries to avoid tax deferrals for taxpayers moving to the
EEA. The rule applies to shares of domestic and foreign corporations, whereas only
participations on at least 1 % become covered. The German system, even after the
decision Hughes de Lasteyrie du Sailllant, imposes an exit tax on relocations within the
EU. Germany allows deferring the tax due free of interest, any payments and securities
for undefined period with the possibility to consider depreciations after the assessment.
So if there is no realization of profits or a departure out of the EEA during this period the
tax has not to be paid anymore. Regarding the emigration to third countries, Germany
gives the taxpayer the opportunity to pay the tax due during the next five years in terms.
Spain’s emigration taxation targets at the departure to tax heaven. Article 8.2 IRPF
provides an extended tax liability, which penalizes the taxpayer who changes his
Spanish fiscal residence for a tax haven. As a result the Spanish tax residence remains
for four years after emigration. Beside to the already mentioned regulation of article 8.2
IRPF, there is another provision existent to be found Article 14.3 IRP. This rule is called
the “anticipated payment”. And causes the immediate taxation of all hidden reserves, if
the taxpayer changes his place of residence, no matter to which country he relocates.
In almost all the Countries hidden reserves are taxed at the exit. While the Spanish exit
tax concerns all the unrealized income of the individual, German exit taxes concerns
only the hidden reserves of corporate shares; the Italian one is levied from the latent
capital gains on the assets of the transferred business (also shares, if they are part of
the business complex). Swedish exit taxation, applicable only for the transfer of assets to
a Swedish or foreign company outside EEA, is levied from the capital gains on
transferred assets.
A regulation, which covers every kind of hidden reserves, can be found in American tax
law where section 877A states that, all property of an expatriate will be treated as sold at
its fair market value on the day prior to departure. This regime, known in the code as a
“mark to market” regime, causes a constructive sale of an individual’s assets the day
before he renounces US citizenship. Since the American unlimited tax liability is
bounded on the US citizenship, the taxpayer first has to pay before he can end his
unlimited tax liability.
The essential measurement for the taxation is the fair market value. This condition can
also be found in all other systems besides Belgium which only levies exit taxes from the
lump-sum distributions from insurance contracts and pension savings.
With regard to the State of emigration, while Germany makes a distinction between
EEA/EU States and third countries, Italy and USA impose tax without regard to where a
person immigrates to. As for the Netherlands, its final payment does not make this
distinction, while the preserving assessment does not require for securities for transfers
in EU Countries.
The countries Italy, Netherlands and Germany apply an extended tax liability for either a
limited time or an undefined period of time. The US however only levies exit tax when
one renounces the USA citizenship.
184
Check the paper written in Barcelona for theme 2.
-41-
Swedish exit taxes for individuals look to the transfer of assets at a price below the
market value on transfers to a company outside the EEA.
Corporate taxation
A corporate exit tax is a tax levied on accrued, but as yet unrealized, capital gains.
Those gains can be made when a corporate taxpayer transfers its residence to another
jurisdiction or when it transfers individual assets from its head office to a permanent
establishment situated in another jurisdiction. The amount of the exit tax is often based
on the market value of the transferred assets or company.
Countries levy corporate tax on capital gains from assets of their resident corporate
taxpayers when these assets are sold or otherwise disposed of. Yet when a company
transfers its residence to another jurisdiction or transfers assets to a permanent
establishment in another jurisdiction, the state of origin risks the loss of its taxing rights
on the gains which have been accrued while the company a resident. In order to deal
with that problem, many countries levy an exit tax.
The need for exit taxes also depends on the way countries organize their corporate
system. Countries which use the incorporation theory, rather than the real seat theory, to
define the fiscal residence of a company, are less likely to care a lot about the seat
transfer of a company. Because, according to their system, seat transfers do not
generally change the fiscal residence of the company. And thus the state of
incorporation normally keeps its taxing rights on (the taxable base of) the company. For
instance, the USA does not levy an exit tax on seat transfers. The fact that countries
base their corporate (tax) system on incorporation does not automatically imply that
there will be no exit tax upon transfer of seat. Sweden and the Netherlands are both
incorporation states and levy an exit tax upon the transfer of the company’s seat.
A distinction can be made between the exit tax on the transfer of assets and the exit
tax on the relocation of a company’s seat. Most countries levy both kinds of taxes.
Yet, not all countries, levying exit taxes on asset transfers, do so in the same way. In
some cases the taxpayer is allowed to defer the imposed tax until the moment of
liquidation or realization of the asset. Amongst others, Germany, (a real seat state) and
the United States (an incorporation state) apply such rules. In other countries the
taxpayer cannot defer the payment of the tax. Sweden and the Netherlands, for
instance, are countries applying an asset transfer exit tax (for corporations) which does
not allow a tax deferral. This can result in a serious cash-flow disadvantage.
There are some countries, like Spain and Belgium, which do not levy specific exit taxes
on asset transfers. However, this does not imply that there will be no taxation at all when
assets are transferred. Unjustified profit relocations may still be targeted by general anti-
avoidance rules and substantial asset transfers may even trigger the exit tax for seat
relocations.
Almost all countries apply exit taxes in case of the relocation of the seat of a company.
The relocation of a company’s seat can be triggered by multiple factors. Some countries
only require that the place of effective management, the main establishment or the
registered office is moved, while others require that all of those are moved abroad. In
some cases, the exit tax will not be applied if the seat is transferred to a country within
the EEA. In those cases, the state of origin requests that it maintains a taxing possibility.
This is often accomplished by the set up of a permanent establishment in the state of
origin. The United States do not levy tax upon the mere relocation of the company’s
seat. The reason for it is that the company is still considered a US company for tax
purposes.
-42-
The effect of the exit tax differs from state to state. Some states levy an exit tax on the
difference between the market value and the book value of the transferred assets.
Others states tax the company as if it would be in the process of dissolution and
liquidation. As such, assets that remain within the state of origin will also be taxed. In the
latter case, the tax burden may be significantly higher.
In general exit taxes can be clustered in exit taxes regarding individuals and regarding
corporations. With regard to exit taxes on individuals the scope of applicability differs
between the discussed countries (e.g. some countries apply exit taxes on shares only
whereas others also levy taxes on pension payments). The analysis shows that there is
a different treatment between the European countries and the US. In the US exit taxes
are based on citizenship whereas the European countries apply regulations based on
residence. Exit taxation for corporations is dependent on the criterion of residence and
subsequently on the criterion for unlimited tax liability (incorporation vs. place of effective
management).
The exit taxation concerning the preserving assessment needs no amendment when
looking at the current EC-law and ECJ judgments. However, bearing in mind the
possibility to levy taxes from residents all over of Europe, one can wonder if an exit tax is
actually necessary in case of emigration to a Member State. When no exit tax rule is
applied this will surely improve tax planning. CSR behavior will not be improved when a
taxpayer is offered the possibility to establish in a country which levies exit tax or a
country which does not.
Exit taxation in the form of the final payment rules need amendment. Questionable is
therefore whether an approach as is applied in Italy, where business activities are taxed,
and like the German’s apply, the possibility to pay the tax debt in installments when the
taxpayer has no sufficient cash flows, is a better option. Another possibility to levy an
exit tax on businesses is via the preserving assessment. The abovementioned
possibilities, however, will not stimulate more tax planning. They will however stimulate
more CSR behavior because taxpayers now have the possibility to collect cash flow to
pay the tax debt.
-43-
ENCLOSURE
-44-
AN INTRODUCTION TO OTHER ANTI-BASE EROSION RULES
Beside to the previously mentioned regulations, the Dutch PITA and CITA contain more
rules which aim at preventing tax base erosion. In the PITA there are also the Articles:
2.14(3), 2.17(5), 3.3(3), 3.116(4), 7.2(8), 3.133(2)(h), 3.133(2)(j), 3.136(1), 7.5 (4, 5 or 7)
and in the CITA Articles 14a(8) and (9), 14b(6) and (7), 8b, 8c, 10(1)(a) and 20(4).
These rules will be discussed shortly.
PERSONAL INCOME TAX ACT 2001
Article 2.14(3) – this article basically prevents the taxpayer from box hopping with capital
between the first (profit taxation) and third box (wealth taxation) within a certain period of
time; and therefore escape the taxation of capital against either the progressive rate up
to 52% in the first box or no taxation at all.
Article 2.17(5) – the possibility to attribute a certain tax deduction to a partner is only
possible when someone has one partner for a full tax year.
Article 3.3(3) – taxable profit is also recovery payments of other entrepreneurs, which
are to be reclassified as equity or that the concluded interest payment is dependable of
the profit.
Article 3.116(4) – a preserving assessment will be imposed when a house owner
immigrates and therefore finish the endowment insurance.
Article 3.136(1)185 – a preserving assessment will be imposed in the case of annuities.
Article 7.2(8) – for foreign taxpayers income derived from pension is taxed as wages.
Article 7.5(4,5 or 7) – For foreign taxpayers taxable as fictitious alienation is not when
the legal person in case the merging company is not located in the Netherlands; when
the acquiring legal person is not resident in the Netherlands or when the effective place
of management has moved abroad this will be dealt with as the alienation of the shares
of that company.
CORPORATE INCOME TAX ACT 1969
Article 8b – this is the at arms length principle codified due to which concern companies
have to determine the price for transaction at market value as if they were doing
business with a independent third party.
Article 8c – this article states that received and paid interest and royalties are not taxed
and therefore not included in the tax base, unless direct or indirectly connected loans or
legal relationships on which on balance no actual risk is present. Only the compensation
for the activities/functions of the legal person are taxed. This article therefore excludes
settlement of withholding taxes with the Dutch corporate income tax in case the
Netherlands resident legal person only functions as intermediary or service provider.
Article 10(1)(a) – direct or indirect profit distributions are not deductible for Dutch tax
purposes no matter the form they are distributed.
Article 14a(8 and 9) – Confirmation from the Tax Authorities on the sound business
reasons for a legal division.
Article 14b(6 and 7) – Confirmation from the Tax Authorities on the sound business
reasons for a legal merger.
185
Check Article 3.133(2)(h and j)
-45-
Article 20(4) – This article and its paragraph prevent losses which rise from holding or
financing activities from a company to be set off unlimitedly against profits from other
activities. This prevents taxation of profits from production activities to be pruned away
by losses which are related to holding participations or financing related companies.
-46-
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PARLIAMENTARY HISTORY
Kamerstukken II 1996/97, 24 761

Kamerstukken II 1998/99, 26 728
Kamerstukken II 1998/99, 26 727, nr. A, Kamerstukken II, 2005-2006, 30572, nr. 4
Kamerstukken II 2003/04, 29 758, nr. 3, p.14 and 23.
Kamerstukken II 2004/05, 29 758, nr. 7, p. 24 (NV, Overige fiscale maatregelen 2005);
Kamerstukken I 2006/07, 30 572, nr. C, p. 31
MvT Kamerstukken II 1995/96, 24 696, nr. 3.

MvT Kamerstukken II 1998/99, 26 727, nr. 3
MvT, Kamerstukken II 2001/02, 28 034, nr. 3
MvT, Kamerstukken II,2005/2006, 30 572, nr. 3.
MvT, Kamerstukken II, 2005-2006, 30 572, nr. 8
MvT, Kamerstukken II 2008/09, nr. 31 717, nr. 3
Nader rapport, Kamerstukken II 1998/99, 26 727, punt 61 and partially 62;
Verslag van een schriftelijk overleg, kamerstukken II 2005/2006, 30 107, nr. 5. Blz. 21-
22.
NnNV, Kamerstukken II, 2003-2004, 29 210, nr. 25
NNV, Kamerstukken II 1996/97, 24 696, nr. 8

NV, Kamerstukken II 1995/96, 24 696, nr. 5,

NV, Kamerstukken II 1999/2000, 26 727, nr. 7
NV, Kamerstukken I 2003/04, 29 210, C
NV II, Kamerstukken II 1996/97, 24 761
NvW, Kamerstukken II, 2003-2004, 29 210, nr. 8
Decree of 11 July 2002, V-N 2002/38.24

Besluit van 3 augustus 2004, nr. CPP2004/882M, BNB 2004/402;
Brief Ministerie van Financien van 29 april 2005. Nr. AFP 2005-00-386, VN 2005/24.3
Brief Staatssecretaris van Financiën van 15 oktober 1996
Brief Staatssecretaris van Financiën 13 april 2004, nr. WDB2004/188U, V-N 2004/21.8
Brief Staatssecretaris van Financiën van 9 februari 2005, nr.WDB2005/77U, V-N
2005/11.7.
Brief van de Staatssecretaris van Financiën, 15 December 2008. nr. DB2008/639U; VN
2009/2.15.
-51-
List of case law
European Court of Justice
15 July 1991, case C-221/89 (Factortame)

28 January 1992, case 204/90 (Bachmann), V-N 1992/994
11 August 1995, case C-80/94 (Wielockx), BNB 1995/319
30 November 1995, case C-55/94 (Gebhard)
17 July 1997, case C-28/95,(Leur-Bloem), BNB 1998/32
28 April 1998, case C-118/96 (Safir), BNB 1999/67
12 May 1998, case C-336/96 (Gilly)
16 July 1998, case C-264/96 (ICI), BNB 1998/420
27 September 1988, case 81/87 (Daily Mail),
18 November 1999, case C-200/98 (X AB and Y AB), V-N 1999/58.24
13 April 2000, case C-251/98 (Baars), BNB 2000/242
21 November 2002, case C-436/00, (X, Y), BNB 2003/221
12 December 2002, case C-385/00 (De Groot), BNB 2003/182
12 December 2002, case C-324/00, (Lankhorst-Hohorst), BNB 2003/170
18 September 2003, case C-168/01 (Bosal), BNB 2003/344,
30 September 2003, case C-167/01 (Inspire Art Ltd.), V-N 2004/4.2
11 March 2004, case C-9/02, (Lasteyerie du Saillant), BNB 2004/258
13 December 2005, case C-446/03 (Marks & Spencer), BNB 2006/72
21 February 2006, C-255/02 (Halifax), BNB 2006/170
23 February 2006, case C-513/03 (Van Hilten), BNB 2006/194
7 September 2006, case C-470/04 (N), BNB 2007/22
12 September 2006, case C-196/04, (Cadburry Schweppes), BNB 2007/54
13 March 2007, case C-524/04 (Test Claimaints in the Thin Cap Group Litigation), VN
2007/15.9
5 July 2007, case C-321/05 (Kofoed), V-N 2007/34.12
16 December 2008, case C-210/06 (Cartesio), V-N 2009/6.22
Supreme Court
18 May 1949, B 8648

3 November 1954, nr. 11 928, BNB 1954/357
29 June 1955, nr. 12 404, BNB 1955/302
5 June 1957, nr. 13 127, BNB 1957/239
4 June 1975, nr. 17 526, BNB 1975/152
27 January 1988, nr. 23 919, BNB 1988/217
26 April 1989, nr. 24 446, BNB 1989/217
3 July 1991, nr. 25 942, BNB 1991/255
3 March 1993 nr. 28 329, BNB 1993/141
10 March 1993, nr. 27 295, BNB 1993/194
10 March 1993, nr. 27 992, BNB 1993/195
10 March 1993, nr. 28 139, BNB 1993/196
10 March 1993, nr. 28 484, BNB 1993/197
10 April 1994, nr. 28 500, BNB 1994/208
6 September 1995, nr. 27 927, BNB 1996/4
20 September 1995, nr. 29 737 (PLC), BNB 1996/5
-52-
27 September 1995, nr. 30 400, BNB 1996/6.
13 November 1996, nr. 31 008, V-N 1996/464
27 August 1997, nr. 32 333, BNB 1998/47
11 March 1998, nr. 32 240, BNB 1998/208c
26 August 1998, nr. 33 687, FED 1999/106
30 June 1999, nr. 34 219, BNB 1999/323
17 February 1999, nr. 34 151, BNB 1999/176
15 November 2000, nr. 35 195, BNB 2001/61
10 August 2001, nr.36 662, BNB 2001/364
8 February 2002, nr. 36 358, BNB 2002/118
24 May 2002, nr. 37 071, BNB 2002/231
23 January 2004, nr. 38 258, BNB 2004/142
24 October 2003, nr. 37 565, BNB 2004/257
17 December2004, nr. 39 080, BNB 2005/169
17 June 2005, nr. 40 819, BNB 2005/304
25 November 2005, nr. 40 990 (Prêt participatif), BNB 2006/82
8 September 2006, nr. 42 015, VN 2006/47.21
10 March 2006, nr. 38 044, BNB 2007/15
8 February 2002, nr. 36 358, BNB 2002/118
23 January 2004, nr. 38 258, BNB 2004/142
9 May 2008, nr. 43 849, BNB 2008/191
11 July 2008, nr. 43 376, BNB 2008/266
20 February 2009, nr. 42 701, LJN: AZ2232
20 February 2009, nr. 42 702, LJN: AZ2238
20 February 2009, nr. 43 760, LJN: BD5481
Court
Hof ‘s-Hertogenbosch September 15th, 2005, nr. 03/0689, V-N 2005/47.11

Hof ‘s-Hertogenbosch January 1st, 2008, nr. 07/00221, V-N 2008/27.13 (FR-NL)
Hof Arnhem November 19th, 2008, nr. 08/00004 and 08/00034, LJN: BG6669
Hof Arnhem April 28th, 2009, LJN BI3989
Lawcourt
Breda, February 15th, 2007, nr. AWB 06/68, VN 2007/34.21

Haarlem, December 12th, 2007, nr. AWB 06/1645; 06/1646, LJN BC6535
Rb ‘s-Gravenhage 18 June 2008, nr. 2007/6114, VN 2008/60.2.2
Conclusions of Advocate Generals
A-G Overgaauw, April 14th, 2005, nr. 40 989 and 40 990, V-N 2005/31.13
A-G Geelhoed, June 29th, 2006, nr. C524/04, VN 2006/41.11
A-G Wattel, October 4th, 2006, nr. 42 699, 42 701 and 42 702, V-N 2007/4.13
A-G Poiares Maduro, May 22nd, 2008, nr. C-210/06, V-N 2008/41/19
A-G Wattel, June 4th, 2008, nr. 07/12314, V-N 2008/39.9
-53-

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The limits to tax planning, minimizing taxes

and corporate social responsibility

Author : Ms. N.I. Laclé BEc

“Sub theme 2: Anti-base erosion rules”

Author : Ms. N.I. Laclé BEc

Tilburg, June 23rd, 2009

Chapter 3: The Netherlands’ system – limitation of interest deduction 8

Chapter 4: The Netherlands’ system – exit taxes 24

Chapter 5: Conclusions and recommendations 43

List of case law 53

2.1. BENCHMARKS OF THE RESEARCH

TAX PLANNING/ MINIMIZING TAXES

CORPORATE SOCIAL RESPONSIBILITY

2.2. THE ANTI-BASE EROSION RULES UNDER DUTCH TAX LAW

2.3. EC-LAW/ ECJ CASE LAW

3.1. THE CORRECT CLASSIFICATION OF FUNDS UNDER THE CITA

3.2. PREVENTION OF EXCESSIVE INTEREST

3.2.1. ARTICLE 10A CITA

Article 10a applies in the possible following cases:

3.3. THIN CAP REGULATION - ARTICLE 10D CITA

3.4. THE LIMITATION OF INTEREST DEDUCTION RULES IN OTHER SYSTEMS

AUSTRIA At arm’s length - -

BELGIUM Article 18, 4° B.I.T.C 1 exception, no

FRANCE - Article 39-1-3 FTC 2 stepts to determine

Safe harbor; ratio of

NETHERLANDS Article 10a and 10b CITA -

Sec. 8a KStG in conjunction EBITDA; safe habour in

Art. ? Aims for specific activities;

All Wintercourse countries have provisions preventing the excessive deductions of

4.1.1. ARTICLE 3.83(1) AND (2) PITA: PENSIONS

When a natural person emigrates who built up a pension in the Netherlands, a

4.1.2. ARTICLE 4.16(1)(H): EMIGRATION OF THE SUBSTANTIAL SHAREHOLDER

4.2. EXIT TAXES: FINAL PAYMENT

4.2.1. ARTICLE 3.60 PITA/ 15C CITA: IN CASE OF EMIGRATION

4.3. EXIT TAXES AND OTHER TAX SYSTEMS

Personal Income Tax

Corporate Income Tax

NETHERLANDS Article 3.83 PITA Article 4.16 (1)(h); -

AUSTRIA NO INFORMATION; the paper by the Austrian student only contained

GERMANY Sec. 6 ASTG Taxation of corporate

NETHERLANDS Incorporation Articles: 15c and 15d -

AUSTRIA NO INFORMATION; the paper by the Austrian student only contained

LIMITATION OF EXCESSIVE INTEREST DEDUCTION

Domestic rules and the benchmarks

Comparison to other countries’ tax system

Domestic rules and the benchmarks

Comparison to other tax systems184

PERSONAL INCOME TAX ACT 2001

CORPORATE INCOME TAX ACT 1969

R.P.C.W.M. Brandsma e.a., Studenteneditie 2007-2008, Cursus Belastingrecht

R.P.C.W.M. Brandsma, G.W.J.M. Kampschöer, '

C. Buys, ‘De fiscale kwalifcatie van de deelnemerschapslening’, Forfaitair 2006/170.

A.B. Carroll, ‘Corporate Social Responsibility: Evoluation of a definitional construct’,

F.A. Engelen and R. van Scharrenburg, ' Onzakelijke leningen in de

M.W.C. Feteris, ‘De techniek van de conserverende aanslag onder de Wet

J.A.G. van der Geld, Hoofdzaken in de vennootschapsbelasting. Deventer: Kluwer 2007.

Ch.P.A. Geppaart, ‘Prof. mr. G.T.K. Meussen, De toekomst van de (Nederlandse)

R.H. Happé, Multinationals, handhavingsconvenanten en fair share in Per Saldo. Den

E.J.W. Heithuis, ‘(R)emigratie en immigratie van aanmerkelijkbelanghouders onder de

E.J.W. Heithuis en R.P. van den Dool, Compendium van de vennootschapsbelasting.

P. Kavelaars, ‘EU en directe belastingen’. Tijdschrift Fiscaal Ondernemingsrecht 2007/1

P. Kavelaars, Grensoverschrijdende zekerheidstellingen europeesrechtelijk getoetst,