Tax Treaty Case Law around the Globe 2014

S. 109Chapter 11 Netherlands: Sale of Dutch Real Estate by Non-Resident Company, Roll-Over Relief and Recapture: Tax Treaty Override?

Daniel S. Smit

11.1. Introduction

Dutch resident companies are taxable on their worldwide income. This taxable income not only includes regular trading income but also capital gains derived from the disposal of business assets. The Dutch legislator has acknowledged, however, that immediate taxation of capital gains may be undesirable in certain instances, e.g. in case of a business reorganization or reinvestment. In order to mitigate the adverse effect of immediate taxation in such cases, several facilities exist in the Netherlands, such as the merger and division facilities, the fiscal unity regime and the reinvestment reserve.

It is the Dutch reinvestment reserve that is at stake in the case at hand. In brief, this facility provides for a roll-over relief in cases where the taxpayer has disposed a business asset, provided that the taxpayer will reinvest in another fixed asset within a 3-year period. As long as this condition is met, the taxpayer can add the capital gain realized upon the disposal of a fixed asset to a non-taxable reinvestment reserve. Upon a...