Decision currency exchange losses previous message

Decision currency exchange losses

In a recent decision, the tax court of The Hague decided that currency exchange losses resulting from a disposal of shares in foreign subsidiaries should be deductible at the level of the Dutch parent company.

This is a large deviation from the Dutch doctrine in which currency exchange loss is normally not qualified as deductible due to the application of the Dutch participation exemption.

Nevertheless, the tax court ruled that the non-deductibility of currency exchange losses is a limitation of the EU freedom of establishment, since it may create an obstacle for Dutch companies to set up foreign subsidiaries. In essence, the tax court sees a resemblance with the treatment of foreign permanent establishments. In the Deutsche Shell case the European Court of Justice ruled that ‘permanent losses’ of foreign premises are deductible at the level of the head office. The tax court of The Hague considered that this EU Court Decision can also be applied in this case, even in a situation where the foreign subsidiaries are not liquidated but continued to be held by other legal entities within the same multinational group of companies.

The decision of the tax court is a pleasant surprise. We anticipate that the Ministry of Finance will file an appeal against this decision. We need to wait for the decision of the Dutch Supreme Court. In the meantime it can be worthwhile to claim a tax deduction for  foreign currency exchange losses in the Dutch corporate income tax return if such losses are realised, for example as a result of group reorganizations.

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