The Gelderland District Court classifies severance payments made by the parent company as costs of selling the shareholding.
The case study
The case This concerns a Dutch company (the parent company) which holds all the shares in a Dutch BV, with which it forms a fiscal unity. In addition, the company holds all the shares in a GmbH and a US Inc. In 2015, the parent company sold all the shares in the BV, the GmbH and the US Inc. to a third party for approximately €30 million.
The shares in the parent company are held indirectly by the two personal holding companies of the directors who are major shareholders, in the ratio 60%:40%.
Staff announce
The parent company wishes to allow all staff within the group to share in the proceeds from the sale and is paying out a severance bonus, which is based on the individual employee’s length of service, salary and performance. These bonuses are paid to staff via the personal holding company of one of the directors and major shareholders and are funded by the parent company.
The Tax and Customs Administration makes a correction
The parent company deducts the severance payments from its taxable profit for the purposes of corporation tax. The Tax and Customs Administration disagrees with this and adjusts this deduction.
The parent company argues, first and foremost, that the bonuses should be borne by the (subsidiary) BV (by means of an informal capital contribution) and that a provision could have been set aside for this purpose within the (subsidiary) BV. In the alternative, the parent company takes the view that the bonuses are borne directly by it and do not qualify as selling expenses relating to the investment.
Facility
The court is of the opinion that no provision can be made for the bonuses paid out. Contrary to a ruling According to the Supreme Court’s 2021 ruling, there is no obligation on the part of the employer towards the employees to pay a bonus contingent on the sale of the company. Nor did such an obligation arise from the employment contracts with the employees. Furthermore, there was no objective evidence whatsoever to show that, prior to the sale, there was a firm intention to pay severance bonuses. The annual performance-related bonuses for 2015 had already been paid to the employees. Furthermore, the court does not consider that a provision can be set aside without the purchaser’s knowledge.
Sales costs
The result (profit or loss) realised on the sale of a shareholding is not subject to corporation tax under the shareholding exemption. The costs of selling the shareholding are also covered by the shareholding exemption and are therefore not deductible from taxable profit.
The Court rules that these constitute (non-deductible) costs of selling the shareholding. For this to be the case, it is sufficient that the costs are incurred as a result of the disposal of the shareholding in question, in the sense that the costs would not have been incurred had it not been for that disposal. The Supreme Court interprets this broadly enough to mean that costs resulting from the sale of a shareholding also fall within the scope of selling costs, as these costs would not have been incurred without the sale.
It is not yet clear whether an appeal (or a direct appeal to the Supreme Court) has been lodged against the ruling of the Gelderland District Court.