It is now well known that a loan between related parties in the corporate sphere is considered as impractical for tax purposes if an independent third party would not have accepted the debtor risk incurred with the loan and that impracticality cannot be remedied via a higher interest rate. In that case, there is a “bad debt risk loan” (ODR loan). Incidentally, this does not mean that the loan is immediately converted to capital for tax purposes, but as soon as the lender wants to write off the ODR loan against profit or earnings, it is refused by the tax authorities.
It is also known that the assessment of whether there is an ODR loan should take place at the time the loan is taken out. Only if the loan conditions change thereafter can an ODR loan still arise. The Zeeland West Brabant District Court has ruled that even if the creditor's position as a creditor deteriorates through its own actions, the loan can become an ODR loan.
The interested party in this case, a director-major shareholder, had (substantially) increased his B.V.s’ credit facility with the bank, stipulating that the loan from himself to the B.V.s could only be repaid with the bank's consent and that the bank could attach conditions to such repayment. Moreover, the loan was pledged to the bank and the director-major shareholder forfeited an immediately payable penalty if the claim was (partially) extinguished or left the assets. On this basis, the District Court refused the deduction of the director-major shareholder's write-down on his loan to the B.V.’s in the disposal arrangement.