The Netherlands’ government announced that the Decree on applying for participation exemption was updated and gazetted on 20 September 2024. The Decree No. 2024-20865 of March 19, 2020, was published in Official Gazette No. 29719.
This Decree updates and supersedes Decree No. 2020-0000000002 of 9 March 2020 and will take effect the day after its publication in the Official Gazette on 21 September 2024.
The key amendments and clarifications include:
Compensation for damages from cancelled purchases or sales
The participation exemption for these payments applies only if the shares involved meet the criteria of “qualifying participation.”
Costs related to buying or selling shares
Costs associated with acquiring or selling participation, such as warranty insurance premiums, are generally non-deductible unless there’s a direct link to the transaction, in which case they are deductible. Mixed costs associated with acquiring or selling participation are partially deductible. Expenses related to forward exchange contracts for currency risk are deductible.
Price consisting of one or more terms
Adjustments to a participation’s sale or acquisition price are considered benefits from that participation, whereas waiving part of a claim does not count as an adjustment.
Option rights
The participation exemption applies to benefits from an option on shares if those shares qualify as participation.
Concern takeover and restructuring
During the acquisition process of a shareholding from an affiliated entity, the purchase price must not exceed the amount originally paid.
The State Secretary indicates that the rule may be waived if two conditions are met: The dissolution and liquidation of the acquiring group’s shareholder occur in connection with the acquisition and within a reasonable timeframe, and the purchase price reflects either the fair market value of the shares at the time of liquidation or the original amount paid by the taxpayer, whichever is lower.
Currency exchange risks
The State Secretary confirmed that the participation exemption applies if a legal act to cover exchange rate risk was entered after a complete request was submitted, before a decision was made, or if a request was received after the legal transaction occurred.
Purchase of participation at purchase price in foreign currency
The State Secretary agreed that upon a taxpayer’s request, any exchange rate gains or losses from foreign currency exchange related to future purchase prices or capital contributions will be counted in the cost price of the investment. This rule applies when a legal transaction occurs after a complete request is received but before the inspector’s decision or when a complete request is received after the transaction.
Liquidation losses
Taxpayers can deduct liquidation losses in the year the subsidiary is completed or declared bankrupt, with deductions allowed up to eight years after the declaration but no later than the completion year.
Approval depends on three conditions: The taxpayer must show that delays in finalising the settlement aren’t for tax evasion, confirm that recognising liquidation losses in the eighth year or later isn’t to avoid corporate income tax and provide a written declaration that all benefits from participation will be included in profit calculations.
Deductible payments
The participation exemption does not extend to benefits that involve deductible compensation or payments. The Decree clarifies that restrictions on deductions and the inability to deduct such payments or compensation will not hinder the application of this provision.
