…that participation acquisition or selling costs may be non-deductible for Corporate Income Tax - CIT - in the Netherlands
The costs directly relating to an acquisition or sale of a participation are considered as not deductible in determining the taxable profit. Therefore, timely determination and allocation of costs is important. From a corporate income tax perspective, you are one step ahead in potential discussions with Dutch Tax Authorities as deductibility is a grey area.
…what is meant with determining and allocation of costs?
From a corporate income tax perspective anticipating a deal transaction several steps are to be taken. Costs identified can be allocated to the seller or the buyer and should be allocated to the relevant taxpayer according to transfer pricing rules. If you have managed to label this, a distinction is recommended to be made between categories of costs involved (e.g., acquisition/selling costs, financing costs, mixed costs, other costs). For instance, costs relating to (post deal) restructuring (i.e., other costs) are considered deductible.
…the sale of shares is not subject to VAT, but input VAT on transaction costs can however be reclaimable
Under very strict conditions though. In a nutshell, the rules and current practice are as follows:
Transaction costs at the level of share Owner/Seller
Input VAT charged on the transaction costs relating to the sale of shares can be deductible if the holding company:
- sells its shares in a subsidiary managed by it (against remuneration);
- owns more than 50% of the shares in this subsidiary.
Also, other facts can play an important role to determine if the VAT on transaction costs is deductible as input VAT at seller level.
Transaction costs at the level of Target
Input VAT on the transaction costs relating to the sale of shares can be considered deductible if there is necessary interest for the entity to be acquired (target) to bear these costs. We experience at the moment, however, that the Dutch tax authorities do not always accept the (full) deductibility of input VAT on transaction costs at the level of the target legal entity.
It is important to timely determine the transaction costs
As without proper planning of a deal, costs involved may impact the final consideration payable in a transaction (i.e., higher or lower purchase price due to agreed tax treatment of such costs between parties). Not properly and timely determining and allocation also limits the potential of deducting costs from the taxable profit. Besides an incorrect allocation may also trigger tax risks.
How Taxperience can assist you with transaction costs
Taxperience is in with the full concept of the planning, allocation and determination of costs involved with transactions. In this respect a team of M&A tax (corporate income tax, transfer pricing and VAT) experts are at your disposal.
If you are making plans of a purchase or sale of shares and expect a transaction in the future, please contact
Bas Sonneveldt, Vat Director (+316 1158 3904) or Hayo de Hartog, Tax Director (+31 6 177 122 21).