Abuse presumption in legal demerger regime violates EU law
03/03/26
On 27 February 2026, the Dutch Supreme Court held that the general presumption contained in the anti‑abuse provision for tax‑neutral legal demerger in the corporate income tax act is incompatible with the EU Merger Directive. The mere fact that shares are disposed of within three years after the demerger does not mean that the demerger was necessarily lacking valid business reasons or was aimed at the avoidance or deferral of taxation. This also applies where the intention to sell to third parties already existed prior to the decision to divide.
What does this mean for you / your business / your organisation?
Are you currently in discussions with the Dutch tax authorities regarding the application of the anti‑abuse provision to the legal demerger facility, or have you received a negative decision for which the objection period has not yet expired? If so, this Dutch Supreme Court judgment may be relevant to you.
As a result of the general abuse presumption being left out of application, the position of taxpayers improves overall. The burden now lies first with the tax inspector to provide at least an initial indication that valid business reasons are absent or that there are indications of tax avoidance or deferral. How the inspector will substantiate this initial burden will depend on the specific facts and circumstances, and it remains to be seen whether this will make a material difference in practice. It will also have to become clear how the Dutch tax authorities will deal with this judgment in the context of requests providing confirmation the demerger is not aimed at the avoidance or deferral of taxation).
In addition, the statutory provisions governing the business merger facility in corporate income tax and the real estate transfer tax exemption for legal demergers also contain a three‑year holding period or an abuse presumption. Now that the Dutch Supreme Court has held this presumption to be incompatible with the EU Merger Directive, these abuse presumptions and/or three‑year holding periods may likewise no longer be sustainable.
The case
The interested party was a funeral insurance company within an insurance group that also included, among others, another funeral insurer and two life insurance companies. It formed part of a Dutch fiscal unity and was therefore jointly and severally liable for the corporate income tax liabilities of that fiscal unity, including potential liabilities arising from a long‑running dispute with the Dutch tax authorities concerning reinsurance arrangements. As a result of intervention by the Dutch Central Bank (De Nederlandsche Bank) and the financial and regulatory situation of the group, it was decided that the interested party’s business had to be sold to an unrelated third party. This sale was structured as a legal demerger (split‑off). Under this transaction, the entire business of the interested party was transferred by operation of law (universal succession) to a newly incorporated acquiring company, while, inter alia, the joint and several liability for the fiscal unity’s tax debts remained with the original company. In consideration for the transfer, a single share in the acquiring company was issued and shortly thereafter sold to the external purchaser.
The interested party requested advance certainty that the demerger was not predominantly aimed at the avoidance or deferral of taxation within the meaning of Article 14a(6) of the Corporate Income Tax Act 1969. The tax inspector rejected this request. According to the inspector, the demerger should give rise to a taxable settlement. This means that, for Dutch corporate income tax purposes, the demerger does not take place on a tax‑neutral basis, but is treated as a taxable sale of the business, as a result of which, in particular, hidden reserves in the assets and the goodwill are subject to corporate income tax upon the demerger.
The demerger facility under the Corporate Income Tax Act and the antiabuse provision
Article 14a of the Corporate Income Tax Act 1969 contains the demerger facility, pursuant to which a legal (demerger or splitoff) demerger may take place on a taxneutral basis under certain conditions, so that no immediate corporate income tax is levied at the level of the dividing or acquiring company. Paragraph 6 of this article, however, contains an antiabuse provision stipulating that the facility does not apply if the demerger is predominantly aimed at the avoidance or deferral of taxation.
As a general principle, a demerger carried out for valid business reasons - such as the restructuring or rationalisation of activities - is not regarded as abusive. The final sentence of paragraph 6 contains an evidentiary presumption under which business reasons are deemed to be absent if shares in the demerged company or the acquiring company are sold to an unrelated third party within three years after the demerger. In such a case, the burden of proof lies with the taxpayer to demonstrate that sufficient business reasons are nevertheless present.
Dutch Supreme Court set aside presumption of proof
The Dutch Supreme Court has held that the anti‑abuse provision of Article 14a(6) of the Corporate Income Tax Act is incompatible with the EU Merger Directive insofar as it contains a general presumption that valid business reasons are absent where a disposal occurs within three years. This general presumption may therefore not be applied. The Supreme Court emphasized that the mere fact that shares are disposed of to a third party within three years following a legal demerger does not, in itself, imply that the demerger was not carried out for valid business reasons or that it was aimed at tax avoidance or tax deferral. This also applies where, prior to the decision‑making process concerning the demerger, there already existed an intention to sell the shares.
Accordingly, the Supreme Court found that the burden of proof was incorrectly allocated. The tax inspector cannot suffice by relying on the statutory presumption but must at least put forward concrete indications demonstrating that no valid business reasons were present or that the transaction was aimed at tax avoidance or tax deferral. On the basis of this adjusted allocation of the burden of proof, the Court of Appeal ’s‑Hertogenbosch must reassess the case.
The Supreme Court further confirmed that, in assessing whether a demerger is based on valid business reasons, both the intended final objective and the route chosen to achieve that objective are relevant. In this respect, it does not exclude that shareholder‑level motives, such as the intention to sell activities, may also qualify as valid business reasons.
Impact of the Supreme Court judgment on other reorganisation facilities and real estate transfer tax
Now that the Dutch Supreme Court has ruled that the explicit abuse presumption for legal demergers is incompatible with the EU Merger Directive, the validity of comparable abuse presumptions and assessment mechanisms in other reorganisation regimes is also being called into question. In the case of legal mergers, the legislation contains a general statutory presumption of abuse where valid business reasons are absent, whereas for business mergers, a similar abuse presumption applies in combination with a three-year holding period.
The demerger exemption in real estate transfer tax also includes a three‑year period; if the shares are sold within that period, real estate transfer tax becomes due after all. In light of the Supreme Court judgment, the question arises whether these abuse presumptions and three‑year periods can be upheld insofar as they result in a (near‑)automatic denial of the tax relief where shares are sold within three years, without an individual assessment of the specific facts and circumstances of the case.
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