Fraus legis; interest deduction in private equity structure; one-off hiring costs

This case deals with the acquisition of Dutch companies through a private equity structure. Within this structure, the Dutch holding company is used for acquisitions and is financed through subordinated loans payable to companies incorporated on the island of Guernsey. The participants in one of the four foreign fund entities provide a loan through a separately established fund which holds no further interests (Fund V). This case concerns the interest deduction on the loan provided by Fund V. The Supreme Court has ruled that affiliation was evaded artificially and therefore the affiliation criterion of article 10a of the Dutch CIT was met on the basis of fraus legis. Because of the lack of valid business reasons for the loan, the interest paid to Fund V is therefore limited in deduction. There seems to be a striking deviation from previous Supreme Court case law because the Supreme Court upholds the interest deduction for the other funds. Lastly, the Supreme Court addresses the application of good business practice to arrangement fees. The Supreme Court has ruled that, under circumstances, they can be deducted at once.