Dividends from an equity holding are not subject to corporation tax.
Participation exemption
We’re talking about the participation exemption. This applies both to the regular returns from an investment (for example, dividends paid out by the investment) and to capital gains (for example, the profit realised when the investment is sold).
An equity interest exists where a company holds a stake of 5% or more in the capital of another company.
Costs associated with the sale of a shareholding
Where the gains derived from the shareholding are exempt, it is not illogical that the costs attributable to the exempt gain cannot be deducted. This is explicitly provided for in the law in respect of the costs of selling a shareholding. The costs of selling a shareholding fall within the scope of the shareholding exemption.
Furthermore, the acquisition costs of a shareholding are not deductible either. These costs are capitalised as part of the acquisition cost of the shareholding.
From when?
But at what point are the costs of selling a shareholding recognised? A decision on this was taken in January by the North Netherlands District Court (and, in a similar vein, as early as 2013, the Zeeland-West Brabant District Court). Costs relating to the disposal of a shareholding are defined as costs that have a direct causal link to the disposal of the shareholding; costs incurred in order to carry out the intended disposal of the shareholding.
According to the court, such costs do arise, from the moment that potentially interested parties have been approached in earnest regarding the takeover of the shareholding. The costs incurred in the preceding period relate to preliminary activities, the assessment of the possibility of a management buy-out, the assessment of a possible sale to an affiliated party or to one of the shareholders, as well as preparatory work. According to the court, however, these costs are deductible.
Is that clear?
The court’s ruling appears clear, but it is unlikely to prompt the Tax and Customs Administration to change its position. An appeal against the court’s ruling has since been lodged with the Court of Appeal. The Supreme Court may ultimately be called upon to rule on the matter.
The Tax Office Generally speaking, as is also evident from the case now under consideration, the tax authorities take the view that all costs incurred from the moment the sale process is initiated (i.e. well before the point at which specific parties are approached) must be regarded as non-deductible costs relating to the sale of a shareholding. In practice, the tax authorities rarely attribute any costs to an exploratory phase. The court’s ruling makes the deduction of costs incurred during the exploratory phase a defensible position in any event.