No interest deduction after intra-group transfer of real estate


Within the group company A transfers real estate to company B against a receivable. By using a fiscal unity (group taxation rules) the group did not to have to pay tax on the capital gain.

Later company A moves to Aruba, where it does not have to pay any tax.

Court The Hague rules that after such a transaction the interest that B pays to A is not deductible, because the group did not pay tax on the capital gain at the time of the transaction and A receives the interest tax free.

Court The Hague rules that the consequence (no interest deduction) of this real estate transaction should be the same as for intra-group transfer of companies for which the interest deduction jurisprudence are converted into law (anti-abuse provisions).

The fact that B pays tax on the real estate income, including the capital gain, makes no difference according to the court. This is because accepting an interest deduction would mean that groups can deduct interest and thus avoid taxation whenever they like by doing such transactions after which effectively nothing has changed.


Since A pays no tax on the interest income it is the opinion of the Court The Hague that B cannot deduct the interest because of it conflicts with the purpose and scope of the law.

Practical relevance?

Besides the general rules for interest deduction (like thincap) groups should take into account that after intra-group transfers of assets in general the interest is only deductible in case things have changed substantially or tax is due on the interest received.

A remarkable court ruling for which I am wondering whether the Supreme Court will have a change to give their opinion.

Source (in Dutch): LJN: BP4315, Gerechtshof 's-Gravenhage , BK-09/00804 en BK-09/00805