Generally, costs incurred related to the acquisition or disposal of a qualifying participation, which is a subsidiary that qualifies for the participation exemption, are non-tax deductible under the Dutch participation exemption rules. However, to what extent costs would actually be considered as related to the acquisition or disposal of a qualifying participation remained unclear.
In a recent Supreme Court case, some clarification on how to deal with costs relating to the acquisition or a disposal of a participation has been provided. The Supreme Court ruled that costs incurred during the (possible) disposal process of a participation need to be accrued as a so-called transitory asset in the balance sheet until it is clear whether the costs actually qualify as tax deductible costs after all. If the participation is actually disposed of, the costs will not be tax deductible after all. However, in case the disposal of the participation is cancelled and/or the participation is at a later stage acquired by another buyer, (some of the) initial costs incurred on the disposal could be deductible.
For the determination whether costs are tax deductible, it is important whether there is a direct link between the costs and the disposal (acquisition) of the participation. There is such a link if these costs are incurred because of the acquisition or disposal of the participation. Initial costs could therefore be deductible if the costs would also have been incurred if the initial stage of the disposal had not taken place. This needs to be determined on the basis of objective standards. Both internal as external costs are included.
Points of attention based on the decision:
- It is important to label the (internal and external) costs upfront, reflecting the specific reason why they have incurred. If it appears that costs are not directly linked to the actual acquisition or disposal of the specific participation, they should be deductible (for instance the costs that relate to the seller who cancelled the acquisition).
- The taxpayer must record a transitory asset on its (tax) balance sheet at the moment the acquisition or disposal of the participation is envisaged and will be written off as soon as this becomes clear.
 Hoge Raad 7-12-2018, nr. 17/01211