New knowledge document on transaction costs

Costs relating to an acquisition  or sale of a participation (“transaction costs”) are not deductible under Dutch tax law (participation exemption).

On 1 February 2024, the Tax Authorities published an updated knowledge document regarding transaction costs following Supreme Court cases. In these so-called “December cases”, the Supreme Court provides direction on the meaning of transaction costs. Despite this clarification, the cases also raise questions. This knowledge document from the Tax Authorities attempts to provide guidance in on the definition of transaction costs.

Before the qualification of transaction costs can be made, it needs to be determined to which company these costs should be allocated. The so-called ‘benefit test’ is key to assess this allocation. The benefit test focuses on which entity benefits from the activities and/or revenues that incurred the costs. The motive behind the costs may be taken into consideration, as well as who is usually liable for certain costs in arm’s length transactions.

Consequently, the knowledge document discusses various elements of the December cases and highlights issues such as mixed costs, fiscal unity scheme, charging of transaction costs and burden of proof. Furthermore, the knowledge document identifies a number of cost types and discusses whether these costs constitute (non-deductible) transaction costs. Some examples are listed below:

• Data room
• Vendor due diligence
• Bonuses
• Warranty & Indemnity insurance
• Notary deed of transfer

The knowledge document serves as an instruction on how the Tax Authorities deals with transaction costs. It is not guaranteed that this application will be followed by a court at all times. The entire document can be found here (only in Dutch).