Although the judgment provides clarity on the principal issue, it also creates significant administrative burdens and uncertainties. Taxpayers may now need to identify, value and monitor unrealised losses at the time of a qualifying ownership change, even where those losses have not yet been formally recognised for tax purposes. In addition, various technical questions with practical impact remain unresolved, which leads to uncertainty for taxpayers.

Background of the case  

The rule for loss utilisation under article 20a of the Dutch Corporate Income Tax Act 1969 (Loss Restriction Rule) is intended to prevent the trading of loss companies by restricting the utilisation of losses following a substantial change (i.e., 30% or more) in the ultimate ownership of a corporate taxpayer. 

The case concerned a company holding a portfolio of real estate assets. At the time of a qualifying ownership change, the fair market value of certain properties was lower than their tax book value. These unrealised losses were realised several years later upon a transfer of these properties. The Amsterdam Court of Appeal and the Advocate General held the view that unrealised losses should be taken into account for the purpose of the Loss Restriction Rule. 

According to the Supreme Court, the legislative history provides sufficient guidance that unrealised losses also qualify as losses within the scope of the Loss Restriction Rule. The Supreme Court also held that the introduction of the loss determination decision (verliesverrekeningsbeschikking) did not alter the application of the Loss Restriction Rule to unrealised losses. However, the Supreme Court made clear that it would have been appropriate for the legislator to have provided specific rules on the identification and treatment of unrealised losses present at the time of the ownership change. 

The judgment does not affect the statutory exceptions to the Loss Restriction Rule, e.g., the business continuity exception. Taxpayers should continue to assess, based on the facts and circumstances of the relevant transaction, whether an exception may be available. 

What does this mean for taxpayers? 

While the Supreme Court has clarified the principal issue, the ruling does not provide any further guidance on the practical consequences. Hence, several questions remain unresolved. These points are expected to be relevant in tax due diligence, transaction structuring, valuation work and future tax return positions. The outcome is particularly relevant for real estate structures, asset-intensive businesses, distressed M&A transactions and companies with significant unrealised gains or losses. Taxpayers may need to retain valuation evidence and monitor asset values throughout the investment lifecycle to preserve their loss utilisation position. 

In particular, taxpayers should consider the following outstanding points: 

Conclusion 

With this judgment, the Dutch Supreme Court has provided important clarity on the treatment of unrealised losses following a substantial change in ownership. At the same time, the decision is likely to create administrative burdens and practical uncertainty. The judgment underscores the importance of timely valuation work and robust documentation in transactions involving companies with unrealised losses.  

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