Earnings stripping rule

Update, September 2026: this case describes the earnings stripping rule as it was announced for 2019. The rule has since been tightened more than once, so the amount of interest that remains deductible above 1,000,000 euro is now smaller. See our corporate tax page or contact us for the current position.

The client’s problem

Today we finalized a Dutch corporate income tax return for a Dutch real estate company owned by a Luxembourg fund. The real estate company was typically funded with shareholder’s loans. Obviously, the loans had to be interest bearing.

Our solution

In 2019 the Dutch corporate income tax act will be amended as a result of the Anti Tax Avoidance Directive. This means that the Netherlands has to introduce an earnings stripping rule. In the case at hand, the deduction of interest will then be limited to (net) Euro 1,000,000 although the actual interest expense is higher. The full amount of interest will nevertheless be included in the taxable base of the creditor. This means that client has to restructure its loans in order to avoid double taxation in 2019.