Personal income tax: fees for interest rate swaps do not qualify for owner-occupier deduction
On 14 July 2017, the Dutch Supreme Court ruled that fees paid for interest rate swaps did not qualify for tax deduction in the hands of an owner-occupier in the case at hand.
The taxpayer and his spouse lived together in an owner-occupied home within the meaning of the Dutch Personal Income Tax Act 2001. Two loans were contracted for this home in 2006 with a view to refinancing the existing home loan. The two new loans were subject to a variable rate of interest. At the same time, the taxpayer signed interest rate swap agreements with the bank. Based on these swap agreements, the taxpayer paid fees to the bank that he felt qualified for owner-occupier deduction in Box 1.
The law stipulates that the following costs qualify for owner-occupier deduction: interest on debts, including costs of loans, qualifying as being associated with an owner-occupied home. In the case in question, the The Hague Court of Appeal and Advocate General Wattel ruled and opined that the net fixed-rate interest qualified for tax deduction.
The Supreme Court did not agree with the Court of Appeal and the Advocate General in opining that the relationship offered insufficient grounds for qualifying the fees the taxpayer paid for the interest rate swaps as interest on a home loan. The wording and purport of the law offer insufficient support for considering the interrelated agreements as a single whole. Viewed separately, the fees for the swap agreements do not qualify as interest on a home loan (given that, in this context, interest is taken to refer to the fee agreed between the lender and the borrower for the provision of a principal over the term of the loan). The fees do not qualify as costs of loans either (given that these are only taken to include costs associated directly with taking out, renewing or repaying a home loan, such as valuation costs, arrangement fees and costs incurred for a mortgage deed). With this in mind, the fees paid under the interest rate swap agreements do not qualify for tax deduction in the hands of the taxpayer under Box 1.
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