Baker & McKenzie announced today that it represented Bosal Holding BV, a manufacturer of exhaust systems, in its case against the Dutch State Secretary of Finance. The ruling, handed down today by the European Court of Justice in favour of Bosal will decrease the Dutch State budget presented on Prinsjesdag (the Dutch budget day) on September 16 by EUR 2 billion.

Under current legislation, Dutch parent companies can only deduct the costs of subsidiaries established in the Netherlands as an interest deduction. This means that finance costs involved in acquisitions and other investments in foreign subsidiaries cannot be deducted in either The Netherlands or abroad.

Fred de Hosson, a Partner in Baker & McKenzie’s Tax Practice representing Bosal, argued that to the extent that such foreign subsidiaries were located within the European Union, the ban was discriminatory and prevented the freedom of establishment within the EU. De Hosson stated that the Dutch statutory restriction on the deductibility of costs, including those for financing incurred for subsidiaries established elsewhere in the EU, should be cancelled.

The European Court ruling confirms that the Dutch State discriminates against companies, which is in contravention of EU law. Bosal may now deduct the loss of its EU subsidiaries. Pending the decision, other companies have also filed claims with the Dutch tax authorities. In the past, they too were not allowed to deduct the costs which were incurred for subsidiaries in other EU member states.

According to Dutch tax authorities, the ruling will lead to a one-time loss in tax proceeds of EUR 2 billion plus, with immediate effect, the Dutch State will receive EUR 1 million less in corporate tax each year. The European Court ruling is in compliance with the recommendation put forward by the Advocate General last year.

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