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Redeemable preference shares classified as loan instead of capital Case X NV, a Dutch holding company owned an Australian company, A1 Ltd. NV X Ltd. has provided loans to A1 Ltd. The subsequent interest received was taxed in the Netherlands. In 2004 X NV and A1 Ltd converted the loans into redeemable preference shares. The conditions are particularly as follows:
According to NV X the participation exemption is applicable on the dividend received. The tax inspector is of the opinion that the redeemable preference shares is a loan and the dividend is thus taxable as interest. Key The court notes that the redeemable preference shares were issued under the following conditions:
That NV X and A1 Ltd classified the redeemable preference shares as a long-term loan or debt in the financial accounts, is for the court also an indication that NV X and A1 Ltd in fact agreed to a loan. Relevance to practice? When providing finance, it is important to determine under which conditions it is given so that the financing also gets the desired classification for tax purposes. The qualification of the finance in the financial statements was for the court in this case an indication that it was also a loan for tax purposes. Article by Blue Clue B.V. Tax Solutions for International Clients & NGO's
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