Netherlands: Farewell bonuses not treated as non-deductible participation selling costs (Supreme Court decision)

Farewell bonuses paid to personnel of a sold Dutch subsidiary were deductible

Farewell bonuses paid to personnel of a sold Dutch subsidiary were deductible

The Dutch Supreme Court on 22 December 2023 held that farewell bonuses paid to personnel of a sold Dutch subsidiary did not constitute non-deductible participation selling costs, and were thus deductible by the Dutch fiscal unity.


The taxpayer—a private limited company (besloten vennootschap (BV))—held all the shares in Dutch, German and U.S. subsidiaries. The taxpayer constituted a fiscal unity for corporate income tax purposes with the Dutch subsidiary. The taxpayer sold the subsidiaries in 2015 and awarded farewell bonuses to the personnel of the former subsidiaries after the sale. The taxpayer sought to deduct the bonuses, but the tax inspector refused, considering the bonuses to be non-deductible participation selling costs.

In the proceedings before the district court, the taxpayer argued that the bonuses were deductible because they were normal wage costs of the subsidiaries that had arisen before the subsidiaries were sold. However, the court found that the bonuses did not constitute normal wage costs and that the bonuses were awarded after the shares were sold and thus were not deductible by the subsidiaries while they were part of the fiscal unity. In addition, the court found that the taxpayer could not deduct the bonuses because they were non-deductible participation selling costs, since they would not have been awarded but for the sale.

The Supreme Court disagreed with the district court’s determination that the bonuses were non-deductible participation selling costs because such costs did not have a direct causal connection with the sale of the subsidiaries in that they were not useful or necessary to realize the sale. Even though the costs would not have been incurred if the sale had not taken place, they were not required to complete the sale. The Supreme Court thus allowed the taxpayer to deduct the bonuses paid to the employees of the Dutch subsidiary, but not the employees of the other foreign subsidiaries. The court did not explain, however, why the amounts paid to the employees of the other foreign subsidiaries were not deductible.

Read a January 2024 report prepared by the KPMG member firm in the Netherlands



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