On September 2, 2022 on the website of the Dutch courts a judgment of the Dutch Supreme Court was published. In the underlaying case the Dutch Supreme Court decided to halt the proceedings and to file pre-judicial questions with the Court of Justice of the European Union (the CJEU). The Dutch Supreme Court asks the CJEU to rule on the question whether the interest limitation rule as laid down in Article 10a, Paragraph, sub c of the Dutch corporate income tax Act as applying in 2007 is in line with the Treaty on the Functioning of the European Union (the TFEU).

Dutch national law

Article 10a of the Dutch corporate income tax Act as applying in 2007

1.  When determining the profit, interest - including costs and currency exchange results – incurred regarding debts legally or factually owed directly or indirectly to an affiliated company or natural person, are not deductible insofar as those debts are legally or factually directly or indirectly related to any of the following legal acts:

(…)

c.  the acquisition or expansion of an interest by the taxpayer, by a company affiliated with the taxpayer and that is subject to this tax or by a natural person affiliated with taxpayer and residing in the Netherlands, in a company that, after this acquisition or expansion, is an entity affiliated with the taxpayer.

Pre-judicial questions raised

The Dutch Supreme Court asks the CJEU to rule on the following questions:

1. Are Articles 49, 56 and/or 63 TFEU to be interpreted as precluding national legislation under which interest on a loan owed to a company affiliated with the taxpayer, which debt is related to the acquisition or expansion of an interest in an entity that after this acquisition or expansion is an entity affiliated to taxpayer, is not deductible when determining the taxpayer's profit because the debt in question must be regarded as (part of) a completely artificial construction, irrespective of whether the debt in question, considered in itself, has been entered into at arm's length conditions?
2. If the answer to question 1 is in the negative, must Articles 49, 56 and/or 63 TFEU be interpreted as precluding national legislation under which the deduction of interest due on a loan to an affiliated entity that is regarded as (part of) a completely artificial construction, which loan relates to the acquisition or expansion of an interest in a company that after this acquisition or expansion is an entity affiliated with the taxpayer, is entirely denied when determining the taxpayer's profits, even insofar as the interest due in itself does not exceed the amount that would have been agreed between independent companies?
3. Does it make any difference for the answering of the questions 1 and/or 2 whether the relevant acquisition or expansion of the interest relates (a) to an entity that prior to this acquisition or expansion was already an entity affiliated with the taxpayer, or (b) to an entity that only becomes an entity affiliated with the taxpayer after this acquisition or extension?

The full text of the judgment of the Dutch Supreme Court can be found here. (Only available in Dutch)

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