The Netherlands Supreme Court (Hoge Raad) on 7 February 2014 issued two decisions affecting taxpayers. The first decision related to whether a payment would be regarded as interest on a loan or as a participation dividend paid on a share capital investment.
In looking at the characteristics of loan and share capital t the Court noted three exceptions to the civil law rules for loans—e.g., an exemption applies to loans if there is a “sham loan” or there is no expectation of repayment or a participating loan is involved. In the case of share capital however there are no such exemptions.
If share capital is regarded as such from a civil law perspective, then it is also regarded as share capital for tax purposes.
The Supreme Court also found that there is a freedom of choice under civil law for taxpayers that seek to finance a company in which the taxpayers participate and that this treatment would not be contrary to the aim and the spirit of the law. This decision can therefore be taken into account when taxpayers are looking at alternative ways of providing finance for a company.
