Dairy farmer’s reinvestment reserve not released upon migration | Deloitte Nederland


Dairy farmer’s reinvestment reserve not released upon migration

Dutch Supreme Court: migration does not require a dairy farmer’s reinvestment reserve to be added to the profit.

17 April 2018

Reinvestment reserve

Dutch reinvestment reserve rules (HIR) provide for the possibility to reserve a gain realised on sale of an asset, if and as long as there is an intention to re-invest the sales proceeds. The acquisition or production costs of assets acquired in the year of the sale or the three subsequent years should then be set off against this reinvestment reserve. This enables carrying forward the gain realised on sale of an asset. Yet under certain circumstances, a reinvestment reserve already formed has to be added to the profit directly, for instance, when a taxpayer no longer receives profit from the respective business in the Netherlands. The Dutch Supreme Court recently ruled in a case in which mandatory release of a reinvestment reserve was disputed.

Dairy farming

The interested party and his spouse operated a dairy farm through a partnership in the Netherlands, which they sold in April 2005. The remaining assets of the dairy farm were also sold or transferred to Germany, save several hectares of pasture. In May 2005, the couple emigrated to Germany to continue their business there. At year-end 2005, the partnership’s balance sheet included a reinvestment reserve. In his 2005 personal income tax return, the dairy farmer opted for resident tax liability. However, the inspector argued that the reinvestment reserve is to be released mandatorily, since the farmer emigrated to Germany.

Arnhem-Leeuwarden Court of Appeal

The Dutch Income Tax Act 2001 provides for creation of a moment of taxation if assets of a business in the Netherlands are transferred to a business conducted abroad. The Arnhem-Leeuwarden Court of Appeal opined that this provision solely relates to assets that can be alienated by their nature and, hence, that it does not apply to a reinvestment reserve. The Court of Appeal argued that this provision does not prescribe mandatory release of the interested party’s reinvestment reserve.

Dutch income tax rules also require final settlement for taxpayers who stop receiving profits in the Netherlands. The dairy farmer had fictitious domestic tax liability in 2005 and also received profit from a business that was partially located in the Netherlands (the pastures kept). The Court of Appeal therefore ruled that final settlement and the related mandatory release of the reinvestment reserve were not required either.


The Supreme Court confirmed the Court of Appeal’s judgment, arguing that a reinvestment reserve is not an object that can be alienated and whose value changes. Its very nature prohibits it from being qualified as a business asset. It is merely a numerical quantity that represents part of a business’s equity - the balance of assets and liabilities - that is subject to a tax claim. In line with a ruling previously issued in a corporate income tax case, the Supreme Court further judged that a taxpayer cannot be said to have stopped receiving taxable profit from their business in the Netherlands as long as they keep a reinvestment reserve. After all, due to that reserve the gain realised will still produce taxable profit in the Netherlands going forward. The Supreme Court rejects the State Secretary’s appeal in cassation, ruling out taxed release of the interested party’s reinvestment reserve.

Source: Dutch Supreme Court, HR 6 April 2018, no. 16/01934, ECLI:NL:HR:2018:513

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