The Dutch Succession Act 1956, which is the basis for both Gift Tax and Inheritance Tax, contains a specific exemption ("the exemption") for assets forming a "business" and/or shares in a company conducting a “business”. Currently (2012), the exemption is 100 percent for the first EUR1,006,000 of value and 83 percent for the excess.
The primary goal of the exemption is to avoid liquidity issues for the business, as a result of a substantial gift or inheritance tax burden for the successor, which can only be paid by extracting cash from the business.
On 13 July 2012, the Court of Breda ruled that the distinction made between "business assets" and "other assets" cannot be justified when the exemption for business assets is as high as 75 percent, without any prejudice to the question whether the business would actually experience liquidity issues. Such a general exemption of business assets is discriminatory towards the other assets.
As a consequence, the Court of Breda ruled the Dutch business succession facility to be in violation of article 26 of the International Covenant on Civil and Political Rights ("ICCPR") and article 14 of the European Convention on Human Rights ("ECHR"), which prohibit discrimination and apply the business succession facility to the entire inheritance regardless of the nature of the assets.
This ruling has been appealed by the Dutch Tax Authorities and will now be re-evaluated by the Higher Court of 's-Hertogenbosch and most likely after that by the Supreme Court in The Hague and perhaps even the European Court of Human Rights ("ECtHR") in Strasbourg.
If this decision is upheld, it is likely to be the end of the Dutch business succession facility, and might even affect business succession facilities in other countries (such as the UK and Belgium), which adhere to the ECHR. Furthermore, unless repaired with retroactive effect, all donations and inheritances between 1 January 2005 and the date of the final decision will in principle be 75 percent exempt. In that respect, it might be worth considering tax planning opportunities before the decision of the Supreme Court/ECtHR. At least, all tax payers should object to tax assessments which do not already take into account the business succession facility.