Doing Business in the Netherlands 2012 - American Chamber of ...

10% compensatory tax threshold at the level of the creditor does not
necessarily entail the deductibility of interest at the level of the debtor,
as the tax authorities still have the opportunity to challenge a
deduction for interest on a loan if the loan came into existence without
sufficient business reasons. As the law does not include a
grandfathering rule for existing loans, the deductibility of interest on
all related party loans that were, until 1 January 2008, defended on the
compensatory tax exception might potentially be challenged by the
Dutch tax authorities.
18.6.2 Article 10, 1, d, Dutch Corporate Income Tax Act (Hybrid
Loans)
Debt is re-qualified into equity for tax purposes if the hybrid loan
meets certain requirements. As a result, the interest on hybrid loans is
re-qualified into dividend and is thus not deductible for corporate
income tax purposes (or received tax-exempt under the participation
exemption, if applicable).
Debt is re-qualified into equity for tax purposes if the following
conditions are fulfilled:
a) The remuneration on the loan depends (almost) entirely on the
profit of the borrower.
b) The loan is subordinated to all creditors.
c) The loan has no term but may be reclaimed only in case of
insolvency or liquidation of debtor, or if it has a term of more
than 50 years. Conversely, the participation exemption
regime applies to income and gains received on hybrid loans,
provided that:
� the creditor of the hybrid loan also has a shareholding
in the issuer that qualifies for the application of the
participation exemption regime;
178 Baker & McKenzie