Participation exemption
Applying the participation exemption prevents profits that have already been at the level of a subsidiary from being taxed again at the level of the B.V. holding the shares. The basic principle is that profits are exempt and that losses are not deductible. There is, however, one exception to the latter: liquidation losses may, under certain conditions, still be deductible.
What does the participation exemption apply to?
The participation exemption applies, among other things, to:
- Dividends.
- Capital gains from the sale of a participation.
- Results from derivative rights related to a participation (such as options or an earn-out arrangement).
- Costs directly related to the acquisition or sale of a participation.
In certain cases, it may be advantageous to make use of the participation exemption. Be aware, however, that specific conditions apply, especially when operating in an international context. We’re happy to advise you.
Acquisition and sale
The process of acquiring or selling one or more B.V.s involves transaction costs. Expenses that are directly related to the purchase or sale of a participation are not tax-deductible.
There has been significant discussion with the Tax Administration regarding the scope of this deduction restriction for corporate income tax. In a court ruling, the Dutch Supreme Court determined that the restriction only applies to costs with a direct causal connection to the acquisition or sale of the participation.
Despite this clarification by the Supreme Court, there remains ongoing debate around the deductibility of acquisition and sale costs. We’re happy to assess the best course of action with you when buying or selling a participation.
