Tax in Distressed Situations: NETHERLANDS

DEBT RESTRUCTURINGSGENERAL1. Does debt have a specific meaning for tax purposes?There is no specific definition of debt for Dutch tax purposes. The Dutch civil law form is inprinciple decisive in this regard. There are three limitative exceptions where the loan is to beregarded as equity for Dutch tax purposes, being (i) the sham loan, (ii) the bottomless pit loan,and (iii) the profit participating loan. If one of these three exceptions does not apply, the loan isconsidered debt for Dutch tax purposes. Unless specifically mentioned otherwise, the remainderof this commentary assumes that the debt is also treated as debt for Dutch corporate income taxpurposes.Next to the recharacterization of certain debt as equity for Dutch tax purposes, it must beconsidered whether a loan is considered businesslike or non-businesslike. A loan is considerednon-businesslike, if an independent third party would not, under the same conditions andcircumstances, have provided the loan and it is not possible to make the loan businesslike withan adjusted fixed interest rate (which in fact is not profit sharing). Non-businesslike loans aretreated as debt for Dutch corporate income tax purposes. However, specific rules apply inter aliato interest deductibility, write offs and impairments.2. Do derivatives have a specific meaning for tax purposes?Derivatives do not have a specific meaning for Dutch tax purposes. The Dutch corporate incometax treatment of derivatives should be determined on a case-by-case basis, considering theclassification for Dutch tax purposes on the basis of the set of rules as set out hereinabove.3. Generally, are intra-group debts treated differently to external debt for tax purposes?In principle, intra-group debts and external debts are both treated the same. However, whendealing with intra-group debts, some aspects are different and require additional attention (e.g.,the arm’s length principle if it concerns intra-group debt, specific interest deduction limitationrules and the conditional withholding tax on intragroup interest payments).4. Does it make a difference if debt is owed by a partnership or other pass through entity indistress to third parties versus to its partners?There are no specific rules (and so no essential differences by nature) if debt is owed by apartnership or other pass-through entity in distress to either third parties or to partners underDutch tax law. Dependent on the structure and relevant facts and circumstances (including whichof the parties has a Dutch taxable nexus), there may be certain attention points from a Dutch taxlaw perspective and hence tax consequences may be different.DEBT IMPAIRMENT1. What are the key tax considerations on a debt impairment for the creditor?For Dutch tax purposes, receivables are in principle valued at nominal value at the level of thecreditor. An impairment to fair market value can for Dutch tax purposes be taken into accountin three cases: (i) if the position of debtor has worsened (based on a subjective and reasonablejudgment of the creditor considering the relevant information available at that time); (ii) in case ofa foreign currency receivable, if the relevant foreign exchange rate has dropped; or (iii) in case ofa fixed interest rate, if the market interest rate has increased and it is the creditor’s intention notto retain the receivable until maturity date.No deductible tax loss as a result of a foreign currency loss or increased market interest can betaken into account if there is a hedged position. In case of non-businesslike loans, no deductibletax loss can be taken into account (except for any liquidation losses). There are specific antiabuse rules in case impaired debt is disposed of or converted into equity if the impairment wastaken as a deduction for Dutch corporate income tax purposes.3TAX IN DISTRESSED SITUATIONS - NETHERLANDS2. What are the key tax considerations on a debt impairment for the debtor?The impairment of debt by the creditor should have no adverse Dutch corporate income taxconsequences for a debtor.In case of procured services on which VAT has been charged by a supplier, debt impairment mayresult in an obligation for the debtor to repay any amounts of VAT deducted by the debtor to thetax authorities.DEBT AMENDMENT, REFINANCING AND NOVATION1. What are the key tax considerations on a debt amendment?Where an amendment to an existing debt results in a new debt for commercial accountingpurposes this could trigger taxable results. If the debt amendment results in the formal oreconomic waiver of debt, this may give rise to taxable debt waiver income at the level of thedebtor. This may be different if the amendment only changes terms in a way that is morefavourable for the borrower with the result that there is no formal or economic waiver of theexisting debt. In addition, Dutch debtors may need to consider whether the amendment affectsinterest deductibility under the Dutch tax interest deduction limitation rules.2. Does the deferral of any payments of interest or repayments of principal trigger taxconsequences?For Dutch corporate income tax purposes, interest income and expenses are generally accountedfor on an accrual (rather than cash paid) basis. Therefore, the deferral of any interest accrualmay have an impact on the timing of recognition of any interest income and expense.For interest payments and expenses which are subject to the Dutch conditional withholding tax(pursuant to the Dutch Withholding Tax Act 2021), accrued interest that has not been paid duringthe calendar year will be deemed to have been paid on 31 December of that year. If subsequentlyan actual payment is made, any interest accrued in a previous year can be deducted from thepayment to the extent it is made plausible that the accrued interest has already been taken intoaccount for purposes of this withholding tax.Unless the deferral has the effect of giving rise to accounting adjustments (see above), thedeferral of any repayment of principal should in principle not trigger adverse Dutch corporateincome tax consequences for the debtor.Assuming the debt was not discounted and has not been impaired by the creditor, repaymentof principal should not give rise to any adverse Dutch corporate income tax consequences fora Dutch debtor or creditor. Where a debt was issued at a discount or has been impaired by thecreditor, any repayment of the principal amount which exceeds the impaired amount of debtrecorded in the accounts of the creditor or which constitutes repayment of the discount element,would be taxable in the hands of the creditor for Dutch tax purposes.The granting of credit does not attract VAT. As such, no VAT is levied on (deferred) interest andrepayments of principal amounts.3. What are the key tax considerations on a debt refinancing?Similar to a debt amendment, if a debt refinancing results in a formal or economic waiver ofdebt, this may give rise to taxable debt waiver income at the level of the debtor. Moreover, Dutchdebtors may need to consider (i) the applicability of the conditional withholding tax on interestpayments, and (ii) interest deductibility.i. Conditional withholding tax: The Netherlands has a conditional withholding tax onintragroup interest payments. The withholding tax is levied on interest payments tojurisdictions with a statutory profit tax rate of less than 9% or to jurisdictions that are EUblacklisted, to certain hybrid entities and in abusive situations.ii. Interest deductibility: Interest is generally a deductible expense for Dutch corporateincome tax purposes on an accruals basis. However, there are a number of detailedrules which can apply to restrict deductibility of interest for Dutch corporate income taxpurposes. This includes interest deduction limitations on: long term low-yield related partyloans, the general earnings stripping rule, ‘abusive’ situations.When debt is refinanced in intra-group situations the arm’s length character of the debtrefinancing (and the terms and conditions of the debt itself) should be taken into account.4TAX IN DISTRESSED SITUATIONS - NETHERLANDS4. Does rolling up interest or satisfying interest through issuing “payment in kind” notes giverise to any tax consequences?For Dutch corporate income tax purposes, interest income and expenses are generally accountedfor on an accrual (rather than cash paid) basis. Therefore, the rolling up of interest and satisfyinginterest through issuing “payment in kind” notes as such should not have adverse Dutchcorporate tax consequences for either a Dutch creditor or a Dutch debtor.Based on commentary to the OECD Model Convention, the term “paid” has a very wide meaning,since the concept of payment means the fulfilment of the obligation to put funds at the disposalof the creditor in the manner required by contract or by custom. The same holds true for theNetherlands, where interest is considered paid at the moment at which the interest is paid oroffset, made available, becomes interest-bearing or has become due and payable. As a result ofthe roll-up, addition to the loan principal and becoming interest bearing, the interest is thereforeconsidered to have been paid.From a VAT perspective it is noted that the payment in kind can be subject to VAT. This dependson the nature of the payment in kind.▪ Roll-up of interest‚ For interest payments and expenses which are subject to the Dutch conditionalwithholding tax (pursuant to the Dutch Withholding Tax Act 2021), accrued interestthat has not been paid during the calendar year will be deemed to have been paid on31 December of that year.‚ Any rolled-up interest that becomes part of the principal amount could becomesubject to accruing interest. As a result, the interest deduction limitations should beconsidered.5. Does the novation of debt by a debtor to another group company trigger any adverse taxconsequences?As long as the transfer of the debt in intra-group situations takes place on arm’s length termsthere should be no Dutch corporate tax issues of the debt novation itself. Upon the novation ofdebt, the original debtor will ordinarily owe the new debtor an amount equal to the debt assumedby the new debtor. Generally, this will take the form of a new intercompany balance betweenthe two entities. With respect to the new intercompany balance and the new debtor, the generalpoints to consider in respect of intercompany debt would be equally applicable (e.g., (i) theapplicability of the conditional withholding tax on interest payments and (ii) interest deductibility).6. Are there any specific tax considerations to bear in mind where the security / guaranteepackage is amended as part of the debt amendment / refinancing?In general, no adverse Dutch corporate income tax consequences are expected when amendingthe security / guarantee package. In intra-group situations, transfer pricing principles should betaken into account to determine whether the guarantor should be remunerated for providing thatguarantee for the benefit of the borrower.In related party situations, there is a difference between a guarantee to obtain a loan as such anda guarantee to loan funds under better circumstances.In case a guarantee of a group entity leads to borrowing under better terms, the borrowerthen borrows on the basis of the credit rating of the guarantor. If this leads to lower costs forthe borrower, it will be willing to pay a fee for the guarantee (the guarantee fee). In case theguarantee fee not only supports better terms, but also increases the borrowing capacity, theOECD guidelines prescribe that the increased borrowing capacity is actually classified as a loanto the guarantor (followed by a capital contribution into the borrowing entity). No guarantee feecan be charged for this as the transaction (the guarantee) is deemed to take place in the capitaldomain.Guarantee fees received by a Dutch-based guarantor are VAT exempt and may result in an inputVAT deduction limitation if the borrower/payor is based in the EU.5TAX IN DISTRESSED SITUATIONS - NETHERLANDSDEBT RELEASES1. Does the release of debt trigger taxable income for the debtor? If so are there any reliefs orexemptions?In principle, a businesslike waiver (i.e., if an unrelated party would also have decided to waivethe loan in the same circumstances) triggers taxable debt waiver income at the level of thedebtor. A non-businesslike debt waiver (i.e., pursued for shareholder motives) does not result intaxable income but, rather, in a deemed capital contribution or deemed dividend distribution (asapplicable). Subject to certain conditions (inter alia that the receivable is non-recoverable andexpressly waived (e.g., in case of bankruptcy, moratorium of payment or in the Dutch Scheme (i.e.,WHOA)), debt waiver income may effectively be exempt at the level of the debtor to the extent itexceeds (i) current year losses (excluding debt waiver income) and (ii) available carried-forwardtax losses (the Dutch Debt Waiver Exemption).With the introduction of the adjusted Dutch loss compensation rules per 1 January 2022, lossrelief is restricted to 50% of the current year profit exceeding EUR 1 million. This led to situationswhere despite the debt waiver, companies still had to pay corporate income tax because theirlosses could not be fully offset. This undesirable outcome has been solved per 1 January 2025.If the available carry-forward tax losses exceed EUR 1 million, the debt waiver income is stillfully exempt from tax, provided that the debt waiver income exceeds the current year losses. Theexisting carry forward losses will be reduced by the amount of the exempt debt waiver income.2. Does the release of debt trigger any withholding or indirect tax? If so are there any reliefs orexemptions?A debt release as such should not give rise to any Dutch withholding or VAT exposure.In case of procured services on which VAT has been charged by a supplier, debt impairment mayresult in an obligation for the debtor to repay any amounts of VAT deducted by the debtor to thetax authorities.3. Can a creditor claim a deduction in respect of any debt that is released?A businesslike waiver by the creditor is in principle tax deductible at the level of such creditor(as far as losses were not already previously taken into account as impairment). If the borroweris a related party and the loan was impaired by the creditor for Dutch tax purposes prior to orupon the waiver and such creditor waives the loan, said prior impairment has to be reversed. Atthe same time, the gain at level of the creditor can be added to a revaluation reserve. This is notapplicable to the extent the gain from the waiver is sufficiently taxed at the level of the (relatedparty) debtor.4. Is the position different if the debt being released is a trade debt?No, this is not different for Dutch corporate income tax purposes.5. Does the release of an uncalled guarantee obligation trigger any adverse tax consequences?Is the position different if the guarantee has been called?Assuming it is not recognized as a liability for accounting and Dutch tax purposes, the releaseof an uncalled guarantee obligation should not have any adverse Dutch tax consequences. If theborrower has defaulted and the guarantee has been called but no payment has been made underthe guarantee, this would likely generally be treated as a liability for Dutch tax purposes. If so, thesame principles set out above in “Does the release of debt trigger taxable income for the debtor? Ifso are there any reliefs or exemptions?” equally apply in that case.6. Do any adverse tax consequences arise on the release of liabilities owed under a derivativecontract?If the release of liabilities owed under a derivative contract would give rise to debt release likeincome for accounting purposes, this would in principle result in taxable income for a Dutchdebtor. In that case the same principles set out above in “Does the release of debt trigger taxableincome for the debtor? If so are there any reliefs or exemptions?” equally apply in that case.6TAX IN DISTRESSED SITUATIONS - NETHERLANDS7. Are there any Pillar 2 considerations to take into account specifically in distressedsituations?The Netherlands introduced the Pillar 2 rules for financial years starting on or after December31, 2023 via the Dutch Minimum Tax Act 2024 (in Dutch: Wet Minimumbelasting 2024). It herebyintroduced the (Qualified) Domestic Top-up Tax and Income Inclusion Rule as of such date withthe Undertaxed Payments Rule being introduced for financial years starting on or after December31, 2024. The Dutch Minimum Tax Act 2024 is based on EU Directive 2022/2523 which generallyis in line with the OECD GloBE Model Rules. A detailed understanding of the Dutch Minimum TaxAct 2024 is not in scope of this paper.It is however important to consider that the Pillar 2 rules require an effective tax rate of atleast 15% based on adjusted financial accounting income and adjusted income tax expenses asrecorded for accounting purposes.From a Pillar 2 perspective, attention should be paid to distressed debt situations particularlywhen a debt waiver takes place whereby such income is not subject to tax at the levelof the debtor (for example if the Dutch Debt Waiver Exemption is available). This since insuch situations, typically financial accounting income is reported by the debtor without acorresponding increase in adjusted income tax expenses. This could distort the effective tax rateunder the Pillar 2 rules, potentially resulting in additional tax (so-called Top-up Tax) due underthe Pillar 2 rules.This issue has been recognized by the OECD / Inclusive Framework. Therefore, an election maybe made by the so-called Filing Constituent Entity resulting in the fact that under circumstances,all or part of the income recognized as a result of the debt release is excluded for Pillar 2purposes (Debt Release Election). However, it is important to recognize that the Debt ReleaseElection typically is only available if - in any case - third party debt is waived. This is different forpurposes of the Dutch Debt Waiver Exemption. This mismatch can still result in a distortion of theeffective tax rate under the Pillar 2 rules.The situations in which the Debt Release Election can be made are as follows:▪ The debt release is undertaken under statutorily provided insolvency or bankruptcyproceedings, that are supervised by a court or other judicial body in the relevantjurisdiction where an independent insolvency administrator is appointed. Where this is thecase, both third-party and intra-group debt released as part of the same arrangement willbe excluded from the computation of the GloBE income or loss (Option A);▪ The debt release arises pursuant to an arrangement where one or more creditors isa person not connected with the debtor (i.e., third-party debt) and it is reasonable toconclude that the debtor would be insolvent within 12 months but for the release of thethird-party debts released under the arrangement. Where this is the case, both third-partyand intra-group debts released as part of the same arrangement will be excluded from thecomputation of GloBE income or loss (Option B); or▪ The debt release occurs when the debtor’s liabilities are in excess of the fair market valueof its assets determined immediately before the debt release. An amount will only beexcluded with respect to debts owed to a creditor that is a person that is not connectedwith the debtor and only to the extent of the lesser of: (i) the excess of the debtor’sliabilities of the fair market value of its assets determined immediately before the debtrelease, or (ii) the reduction in the debtor’s attributes under the tax laws of the debtor’sjurisdiction resulting from the debt release (Option C). Option C only applies where OptionA or Option B do not apply.The Debt Release Election is not available for Transitional CbCR Safe Harbour purposes, meaningthat the applicability of the Transitional CbCR Safe Harbour can be impacted by debt releaseincome recognized by the debtor.Aside from the above-mentioned, it is highly recommended to verify if other elements that arerelevant in case of distressed debt, such as an adjustment to the terms and conditions of a debtor an impairment of the debt, results in accounting income / loss being recognized by either thedebtor or creditor. If so, it is important to assess if such income / loss is also (at the same time)recognized for tax purposes. Should this not (yet) be the case, it should be reviewed if this is atemporary difference for which a deferred tax expense may (need to) be considered and what theimpact thereof is on the effective tax rate under the Pillar 2 rules.7TAX IN DISTRESSED SITUATIONS - NETHERLANDSDEBT FOR EQUITY EXCHANGE1. What are the key tax considerations on a debt-for-equity exchange for the creditor?A debt for equity swap can take place either via: (i) the issuance of new shares by the debtor up tothe nominal amount of the receivable and contribution of the receivable to fulfil the contributionobligation; or (ii) the contribution of a receivable by the creditor on (informal) share capital (newly)issued by the debtor, whereby debt is cancelled by operation of law in the hands of the debtor.A debt-for-equity swap does in principle not result in profit for the creditor, but in a (deemed)capital (or share premium) contribution by the creditor in the debtor. Such debt for equity swapcan take place at nominal value (including accrued interest).There is a reversal of prior impairment of the receivable at the level of the creditor, resulting in again when debt is converted (i.e., similar to the consequences in case of debt waiver (see “Can acreditor claim a deduction in respect of any debt that is released?”).A debt for equity swap should not attract VAT.2. What are the key tax considerations on a debt-for-equity exchange for the debtor?A debt-for-equity swap of a non-recoverable/distressed loan does in principle not result in profitsfor the debtor, but in a (deemed) capital (or share premium) contribution by the creditor in thedebtor.Any latent foreign exchange gain or loss on the debt will be realized upon the debt-for-equityswap.The existing tax losses are in principle not affected. However, loss compensation may be limitedin case of a substantial change of ownership (see “Are there any adverse tax consequencesarising from a change of control or break of a tax group?”)3. Where warrants or similar instruments are issued as part of a debt restructuring does thistrigger any adverse tax consequences?The issuance of warrants or similar instruments (such as contingent value rights) can result indifferent Dutch tax consequences depending on the specific facts and circumstances of the caseat hand. This may in any case be relevant for (among others) the Dutch dividend withholding taxand Dutch conditional withholding tax positions, the Dutch participation exemption and the Dutchfiscal unity regime. This should be verified on a case-by-case basis also taking into account theaccounting treatment of the relevant warrants or similar instruments.4. What are the key tax consequences of capital contributions by a parent company into itssubsidiary?Capital contributions as such should not have any adverse Dutch corporate income taxconsequences. However, capital contributions can influence various aspects, including:▪ For the parent entity making the capital contribution, the capital contribution leads to anincrease of the cost price of a participation by the fair market value of the receivable. Forthe subsidiary receiving a capital contribution the capital is increased by the nominal valueof the debt.▪ Capital contributions can influence the ownership structure. In case the ownershipinterest falls below 5%, this can for instance influence the application of the participationexemption and the dividend withholding tax exemption. If the ownership interest fallsbelow 95% this can lead to the dissolution of the entity from the fiscal unity for Dutchcorporate income tax purposes.▪ In case of capital contributions into a Dutch entity, the tax base to be taken into account bythe Dutch taxpayer will be at maximum (for assets) or at minimum (for liabilities) the valuethat is taken into account in the contributor’s or distributor’s or transferor’s profit tax base.8TAX IN DISTRESSED SITUATIONS - NETHERLANDSFEES AND TRANSACTION COSTS1. Is there any adverse tax impact in respect of common restructuring fees, for example,consent fees?There is in principle no adverse Dutch corporate tax impact of restructuring fees themselves. Wenote that financing costs (banking fees, etc) may also qualify as ‘interest’ under the conditionalwithholding tax and earnings stripping rules which could require further attention.The VAT deduction right for restructuring costs depends on the overall VAT position of thecompany that incurs the relevant costs (or the VAT fiscal unity to which such company belongs).For VAT deduction, it is required that the company that incurs the costs is considered therecipient of the services and also uses the acquired services for its own VAT taxable outputtransactions. That should be evaluated on a case-by-case basis. See also our answers to question2 regarding acquisition and disposal costs.2. Are transaction costs deductible for tax purposes and is any VAT recoverable?Before the question should be answered as to whether costs are non-deductible acquisitionor disposal costs, the costs must first be allocated to the appropriate entity. This allocationpredominantly revolves around whether all costs related to a disposal (or in some cases anacquisition) should be borne by the shareholders entering into the transaction, or whether somepart of the costs should be borne by the target. At the level of the target such costs would inprinciple be ordinary deductible costs.Common costs in a transaction relate to financing, acquisition costs and “basic operating costs”.Below the deductibility of each of these categories is discussed:▪ Financing costs: Financing related costs (i.e. costs that are made to obtain the financing)should generally be tax deductible, assuming that the interest expenses on the debt itselfare tax deductible. Financing costs may be deductible at once or capitalized and amortizedover the term of the loan to which the financing costs relate. In case of a one-timepayment which actually is a prepayment of interest, these costs should be capitalized andamortized over the term of the loan. We note that financing costs (banking fees, etc) mayalso qualify as ‘interest’ under the conditional withholding tax and Dutch earnings strippingrules which could require further attention.▪ Acquisition / disposal costs: Costs in connection with an acquisition or disposal of aparticipation which qualifies under the Dutch participation exemption are non-deductible.Such acquisition or disposal costs must have a direct causal link with the acquisition orsale.▪ Basic operating costs: Basic operating costs are costs inherently linked to the legal formof the taxpayer. These costs are primarily related to the existence of the taxpayer as alegal entity and depend on the amount of capital and not on how the capital will be used.They should not be defined as non-deductible costs in relation to acquisitions or disposal.VAT ASPECTS ACQUISITION / DISPOSAL COSTSFrom a VAT perspective, the acquiring, holding and selling of shares in subsidiaries in principledo not qualify as economic activities. This means that the VAT on costs related to such noneconomic share-related activities in principle cannot be deducted as input tax.The VAT deduction right of a VAT taxable person is not limited by its activity of acquiring, holdingor selling shares if the shareholder:i. supplies goods or services for remuneration to the company in which it holds shares; orii. holds the shares with the aim to reorganize, support or expand its own economic activities.A VAT taxable person that acquires shares in a subsidiary can, if the shares held fall withinthe above situations, treat the acquisition costs as general costs. In that case, the VAT on theacquisition costs is eligible for deduction based on the overall VAT position of the company thatincurs the acquisition costs (or the VAT fiscal unity to which such company belongs).9TAX IN DISTRESSED SITUATIONS - NETHERLANDSThe following applies with regard to share disposal costs. A VAT taxable person that sells sharesin a subsidiary which is held in the above two situations, or who sells the shares to use theproceeds for its own economic activities, must allocate the transaction costs as follows:i. Direct costs: The input VAT on costs directly used for the share sale is non-deductible ifthe buyer of the shares is in the EU and are deductible if the buyer is outside the EU.ii. General transaction costs: The input VAT can be deducted based on the overall VATdeduction right of the company (or the VAT fiscal unity to which such company belongs).The proceeds obtained from the share disposal may be excluded from the so-called pro ratacalculation if the sale is an incidental financial activity. According to the applicable guidelines,such an incidental activity is not present, if the seller is (affiliated to) a private equity company.VAT ASPECTS FINANCING COSTSThe VAT deduction right for the financing costs depends on the usage of the financing costs foroutput transactions. For example, if the financing costs are used for rendering an interest-bearingloan to a party established in the EU, the VAT on these costs cannot be reclaimed. On the otherhand, if the financing costs are used for the own business activities of the VAT taxable person,the VAT on the financing costs may be deducted based on the overall VAT deduction right of thecompany (or the VAT fiscal unity to which such company belongs).TRANSACTION COSTS THAT DO NOT ATTRACT VATVAT exemptions may apply to services that are related to the granting and negotiating of credit,insurances and intermediary services in connection with share transactions (e.g., servicesprovided by certain corporate finance firms and share brokers).10TAX IN DISTRESSED SITUATIONS - NETHERLANDSDEBT ENFORCEMENT1. Aside from insolvency proceedings, what are the key methods of enforcement and their taximpact?In order to force payment of a debt, a creditor can initiate court proceedings to obtain a courtorder for payment. Such an order is required for a creditor to be able to enforce over a debtor’sassets, unless the claim has been laid down in a notarial deed. With a view to ensure recourse,a pre-judgment attachment can be levied over a debtor’s assets before a claim has beenestablished by a court.To the extent a creditor’s claim has been secured by its debtor (or a third party), such securitycan be enforced from the moment a payment default exists in respect of the secured obligations.A creditor can furthermore petition the court to declare its debtor bankrupt. To that end, thecreditor will have to prima facie prove to the court that i) the debtor has at least two creditors(one of them being the filing creditor) and ii) that at least one of these two debts is currently dueand payable.2. If the enforcement results in the creditor taking ownership of equity or assets, what are thekey tax considerations to bear in mind?When a creditor obtains ownership of the asset via enforcement, the following key taxconsiderations should be kept in mind:▪ Dutch corporate income tax would be due at the level of the debtor if and to the extent thefair market value of the assets acquired by the creditor would be higher than the tax bookvalue of the relevant assets in the books of the debtor.▪ When real estate (or shares in a real estate company) is acquired, real estate transfer taxwill likely be due.When shares are acquired, the following key tax considerations should be kept in mind:▪ In case of a share transfer, the tax book values of the assets (and liabilities) at the levelof the debtor in principle remain unchanged and as such, any difference between the fairmarket value and the tax book value of the assets (and liabilities) is not realised at thetime of the transfer. A Supreme Court case is pending on the question whether upon achange of control of 30% or more, latent losses need to be taken into account (as deemedrealized). A decision is expected in spring 2026.▪ In case of a Dutch transferor, the transfer of the shares itself should in principle not resultin any taxation due if the Dutch participation exemption applies at the level of the Dutchtransferor.▪ Change of control rules could be triggered and the fiscal unity could be (partly)deconsolidated as part of the transfer of the shares (see “Are there any adverse taxconsequences arising from a change of control or break of a tax group?”)3. Are any specific tax considerations arising on payments or transferring security underguarantees as opposed to the debt?When transferring a security under guarantee, it needs to be analysed whether the transaction iscapital related or debt related.In general, if the guarantor makes a payment to the counterparty, the question arises whether arecourse claim on the guaranteed entity may need to be booked, and if not, whether a deemeddividend or deemed capital contribution should be recognized.4. Are there any adverse tax consequences arising from a change of control or break of a taxgroup?The breakup of a fiscal unity may trigger several claw-back provisions potentially resulting in ataxable result, such as:▪ In relation to assets/liabilities that have been transferred within the fiscal unity withinthe last 6 years (or 3 years in specific facts and circumstances) with a higher (in caseof an asset) or lower (in case of a liability) fair market value than the tax book value atthe moment of the transfer, such asset/ liability should be revalued at fair market value,11TAX IN DISTRESSED SITUATIONS - NETHERLANDSimmediately prior to the moment of leaving the fiscal unity by the respective transferor ortransferee;▪ Receivables between fiscal unity members should be valued at nominal value or, if lower,the going-concern value, immediately prior to the moment of leaving the fiscal unity. At thesame time, the debts should be valued at nominal value.▪ Tax losses of the fiscal unity in principle remain with the parent. Subject to certainconditions, losses may be transferred to subsidiaries leaving the fiscal unity to the extentthose losses are attributable to those subsidiaries. Similar rules apply in respect of carryforward interest under the earnings stripping rule and other tax attributes.Companies included in a fiscal unity are jointly and severally liable for the Dutch corporate taxdebts of the entire fiscal unity for the period during which they were part of the fiscal unity. Thisliability will in principle only materialise if the parent fails to remit the CIT due to the Dutch taxauthorities.The break-up of a fiscal unity for Dutch VAT purposes should not trigger similar claw-backsas described above. However, note that members of a VAT fiscal unity may be held jointly andseverally liable for VAT of other fiscal unity members for the period in which the subsidiary wasassigned as part of such fiscal unity by the Dutch tax authorities. Moreover, transactions betweenmembers that were part of a fiscal unity for VAT purposes will in principle become subject toVAT again (unless the transaction is exempted from VAT). The breakup of a fiscal unity for VATpurposes will also affect the input VAT deduction right of the members. The members will haveto establish their right to deduct input VAT on a stand-alone basis after termination of the fiscalunity for VAT purposes.With respect to real estate transfer tax, it is noted that in case of claw-backs (e.g., operationaland/or shareholding requirements resulting from the exemption for mergers, demergers and/orinternal reorganizations), real estate transfer tax can become due (by an acquirer of real estate)in certain circumstances in case of a breakup of the existing company or operational structure.That would have to be further evaluated on a case-by-case basis.In addition, change of control rules are relevant in respect of carry forward losses and carryforward interest for Dutch corporate income tax purposes.The change of control rules stipulate that if the ultimate ownership interest in the taxpayer haschanged substantially (i.e., 30% or more) compared to the ultimate ownership at the start of theoldest year of which the losses can be carried forward, losses incurred before the moment of thechange in the ultimate ownership occurred can no longer be offset against future profits of thetaxpayer. Losses will however remain available for offset if the following cumulative conditionsare met:A. in both the loss-making year and the year in which a profit is made, the assets of thetaxpayer do not consist mostly (for more than 50%) during at least nine months of passive,portfolio type of investments;B. the total size of the taxpayer’s activities directly preceding the change in ultimateownership interest has not been reduced to less than 30% of the total activities at thebeginning of the oldest financial year in which losses are incurred which are available foroffset; andC. at the time of the change in ultimate ownership interest, there is no intention to reducethe total size of the activities within three years to less than 30% of the activities at thebeginning of the oldest financial year in which losses are incurred which are available foroffset.Currently a court case is pending on the question whether upon a change of control of 30% ormore, latent losses need to be taken into account (as deemed realized).The earnings stripping rules stipulate that if the ultimate ownership in the taxpayer has changedsubstantially (i.e. 30% or more) compared to the ultimate ownership at the start of the oldestyear of which interest can be carried forward, the amount of interest carry forward before themoment of the change in the ultimate ownership occurred can no longer be offset against futureprofits of the taxpayer. Interest will remain available for offset if the earlier mentioned cumulativecriteria under A. - C. are met.12TAX IN DISTRESSED SITUATIONS - NETHERLANDS5. Where equity / assets are indirectly transferred as part of an enforcement, does that triggeradverse tax consequences?There are no specific Dutch tax considerations in case of indirectly transferred assets aspart of an enforcement, the Dutch tax consequences ultimately depend on the specific factsand circumstances. The principles set out above in “If the enforcement results in the creditortaking ownership of equity or assets, what are the key tax considerations to bear in mind?” mayespecially be relevant in that case.6. Is any claw back permissible where a distressed company pays taxes for which a solventshareholder is liable?Under Dutch tax law, there are no such clawbacks.13TAX IN DISTRESSED SITUATIONS - NETHERLANDSACQUISITION OF DEBT1. Does the acquisition of a creditor’s interest in distressed debt trigger any adverse direct taxconsequences for the debtor?The transfer of a receivable by a creditor does in principle not have any adverse Dutch taxconsequences for the debtor. If the receivable is transferred to the debtor itself this may result indebt waiver income at level of the debtor, for example, if the receivable is transferred for an amountbelow nominal value. In that case, the same principles set out above in “Does the release of debttrigger taxable income for the debtor? If so are there any reliefs or exemptions?” equally apply.2. Does the acquisition of distressed debt trigger any adverse withholding or indirect taxconsequences for the debtor?Dutch debtors may need to consider the conditional withholding tax position (in case of a newcreditor). However, acquisition of distressed debt does not trigger any adverse VAT consequencesfor the debtor3. What are the key tax considerations for the purchaser of a creditor’s interest on theacquisition of distressed debt?There is in principle no specific adverse Dutch corporate tax consequences for the purchaser ofa creditor’s interest on the acquisition of distressed debt. However, in related party situations thepurchase price should be at arm’s length to avoid tax adjustments, including deemed dividends ordeemed capital contributions.If the acquisition of distressed debt is considered an investment in the underlying asset, this couldtrigger real estate transfer tax in case of the financing of real estate assets.4. Are there any particular beneficial regimes accessible to a purchaser of a distressed debtportfolio?There is no specific regime for Dutch tax purposes that applies for purchasers of a distresseddebt portfolio.14TAX IN DISTRESSED SITUATIONS - NETHERLANDSINSOLVENCY PROCEEDINGS1. What are the key insolvency procedures?Dutch companies can become subject to three different types of insolvency or restructuringproceedings in the Netherlands that are governed by the rules of the Dutch Bankruptcy Code(Faillissementswet):i. Bankruptcy (faillissement) - a process aimed at liquidation, where the debtor’s assets areliquidated and the proceeds are distributed to its creditors. Bankruptcy can be filed forby one or more of the creditors of the debtor (involuntary filing), or by the debtor itself(voluntary filing). The basis for a bankruptcy adjudication is that the debtor has at leasttwo creditors (one of them being the filing creditor if the filing is involuntary) and that atleast one of these two debts is currently due and payable. The most important effect of thebankruptcy is that the debtor loses the power to dispose of its assets, only the bankruptcytrustee can dispose of the assets from then on. In case of a bankruptcy, secured creditorscannot enforce their security during a cooling off period (maximum of 4 months).ii. Suspension of payments (surseance van betaling) - legal moratorium where the debtoris given temporary relief against pressing creditors in order to achieve, by way ofreorganization, continuation of its business and/or, ultimately, satisfaction or partialsatisfaction of creditors by way of a composition. A suspension of payments may begranted for a maximum period of 18 months and may be extended without limit atthe request of the debtor for successive 18 months periods. If a definite suspension ofpayments is not granted by the court, or if the court refuses to grant an extension, thecourt may - and usually does - at the same time declare the debtor bankrupt. Securedcreditors cannot enforce their security during a cooling off period (maximum of 4 months).iii. Court Approval of a Private Composition (Prevention of Insolvency) Act 2021(Wet Homologatie Onderhands Akkoord - WHOA) - a procedure similar to the Chapter 11 ofthe United States Bankruptcy Code and the UK restructuring plan. The company itself canoffer a composition (i) to restructure its debts outside an insolvency proceeding, or(ii) to liquidate the assets of the company outside an insolvency proceeding. In principle,the offeror can design the composition as it deems fit. If at least one class of ‘in the money’creditors voted in favour of the composition, the company can request the court to approvethe composition and declare it generally binding (i.e. also on dissenting creditors andshareholders). An important element in the WHOA is that also claims of surety’s, jointand severally liable debtors and guarantee providers can be amended by the composition(noted is that employees are excluded from the WHOA process).2. What are the key tax considerations arising upon entry into an insolvency procedure?There are no specific adverse Dutch tax consequences arising upon entry into an insolvencyprocedure. The tax considerations depend on the specifics of the case at hand.In particular, we would like to note an important Supreme Court decision (‘Fokker II’ decision)with respect to debt obligations that remain unpaid in case of bankruptcy. It follows from FokkerII that any debt obligations that remain unpaid upon liquidation should generally not result in a(taxable) capital increase for Dutch tax purposes, as the Dutch Supreme Court ruled that suchdebt obligations remain due for Dutch tax purposes. However, the Supreme Court mentioned thatthere may be an exception in case the bankrupt company formed part of a fiscal unity. The scopeof the exception by the Supreme Court in Fokker II has been clarified by the Supreme Court in itsdecision of September 10, 2010 (BNB 2010/308). In this decision, the Supreme Court ruled that incase debt obligations of the debtor remain unpaid, that there will be a taxable capital increase atthe level of the fiscal unity head at the moment that the relevant debtor (fiscal unity subsidiary)ceases to exist within the fiscal unity as a result of the end of bankruptcy due to the lack ofincome.3. Does entry into an insolvency procedure impact tax groupings?The entry into an insolvency procedure itself does not have any specific adverse Dutch taxconsequences for Dutch tax groups. The tax considerations depend on the specifics of the case athand.4. Are there any specific tax set offs available in an insolvency?There are no specific tax set offs available. Any set offs follow the general insolvency laws.15TAX IN DISTRESSED SITUATIONS - NETHERLANDS5. Is the tax authority a preferential creditor in an insolvency?In the Netherlands, the Dutch tax authorities are a secondary preferential creditor in aninsolvency.6. Are directors or other managers personally liable for tax debts in an insolvency?If a limited liability company (besloten vennootschap or BV) is no longer able to pay its taxes (onlyapplies to VAT, wage tax and several other (mostly excise) taxes (not corporate income tax)) andcontributions when due, it must report this to the Dutch tax authorities, the Employee InsuranceAgency and (if applicable) the company pension fund. This notification must be made withintwo weeks after the taxes or contributions should have been paid, failing which each managingdirector is jointly and severally liable for the unpaid taxes and contributions. In that case, anindividual managing director can only exculpate himself if he proves that he is not to blame forthe fact that the company has not complied with the reporting obligation and that the unpaid taxand premium payments are not the result of improper management on his part.If the report is made in time, a managing director will only be liable if it is proven that the nonpayment of the debt is the result of manifest mismanagement on his part. This is the case whenthe director has facilitated that the company’s tax debts have remained outstanding, while heknew or reasonably should have known that his actions would result in those tax debts remainingunpaid and he may personally be blamed.WEIL CONTACTSMEET THE AUTHORS OF OUR JURISDICTIONAL GUIDESLondonUnited StatesFranceEdouard de LamyPartner, TaxParis+33 1 4421 [email protected] WalkerPartner, TaxLondon+44 20 7903 [email protected] BodohPartner, TaxWashington, D.C.+1 202 682 [email protected] PiquePartner, TaxParis+33 1 4421 [email protected] PariPartner, TaxWashington, D.C.+1 202 682 [email protected] SternbergCounsel, TaxNew York+1 212 310 [email protected] GoldringPartner, TaxNew York+1 212 310 [email protected] PibworthCounsel, TaxLondon+44 20 7903 [email protected] RitchieAssociate, TaxLondon+44 20 7903 [email protected] & LOEFF CONTACTSMEET THE AUTHORS OF OUR JURISDICTIONAL GUIDESThe NetherlandsLuxembourgSwitzerlandBartjan ZoetmulderPartner - Tax AdviserT +44 20 7826 3071M +44 7879 607 [email protected](Currently on assignment in London)Aziza TissirSenior Associate - Tax AdviserT +31 10 22 46 593M +31 6 53 42 48 [email protected] BretelerAssociate - Tax AdviserT +31 20 578 53 01M +31 6 22 59 37 [email protected] HijdraSenior Associate - Tax AdviserT +31 20 578 51 93M +31 6 10 89 57 [email protected] KleinCounsel - Tax AdviserT +31 20 578 5045M +31 6 51 42 67 [email protected] BaumgartnerPartner - Attorney at LawT +41 43 434 67 00M +41 79 93 06 [email protected] HammererSenior Associate - Tax AdviserT +44 207 826 3070M +41 79 878 62 [email protected](Currently on assignment in London)BelgiumBenno DaemenCounsel - Attorney at LawT +32 2 773 23 67M +32 497 32 99 [email protected] EngelsPartner - Attorney at LawT +32 2 743 43 92M +32 496 13 76 [email protected] HodirevaAssociate - Tax AdviserT +312 057 853 27M +352 6 91 96 31 [email protected]évin EmerauxPartner - Tax AdviserT +352 466 230 570M +352 6 91 96 32 [email protected] KlethiPartner - Tax AdviserT +352 466 230 429M +352 6 91 96 31 [email protected]© 2026 WEIL, GOTSHAL & MANGES LLP AND LOYENS & LOEFF. ALL RIGHTS RESERVED. QUOTATION WITH ATTRIBUTION IS PERMITTED. THISPUBLICATION PROVIDES GENERAL INFORMATION AND SHOULD NOT BE USED OR TAKEN AS LEGAL ADVICE FOR SPECIFIC SITUATIONS THAT DEPENDON THE EVALUATION OF PRECISE FACTUAL CIRCUMSTANCES. THE VIEWS EXPRESSED IN THESE ARTICLES REFLECT THOSE OF THE AUTHORS ANDNOT NECESSARILY THE VIEWS OF WEIL, GOTSHAL & MANGES LLP AND LOYENS & LOEFF.CLICK HERE for more guides providing a high-level overview of important tax considerations for debt restructurings, enforcement, acquisitions of debt and insolvencyproceedings for both debtors and creditors from UK, US, French, Luxembourg, Swiss, Belgian and Dutch tax perspectives.