Financing and interest deductibility restrictions

Within any business financing raises many questions. Should you, for example, invest with equity or just with debt? The details of your financing can have major tax consequences, including for interest deductibility on the financing. Forvis Mazars will help you optimise your tax financing structure.

Equity and debt

Equity and debt are treated differently for tax purposes. For equity compensation in the form of dividends is not deductible. The costs of external financing in the form of interest are in principle deductible.

This difference in treatment encourages companies to finance with debt. However, Dutch corporation tax includes a number of regulations that restrict interest deductibility. In the following situations, this can be important:

  • Loans that have the nature of equity
  • Erosion of the Dutch tax base
  • Interest-free financing with a long maturity
  • Excessive debt financing (until 2013)
  • Financing connected with the acquisition or extension of a related body (from 2013)
  • Excessive financing of acquisitions with debt

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