Limitation of loss set-off does not violate right of property | Deloitte Nederland


Limitation of loss set-off does not violate right of property

In the eyes of the Supreme Court, implementing a statutory limitation on loss carry forward with retroactive force does not trigger a violation of the right to a peaceful enjoyment of property.

18 April 2018

Right of property

Article 1 First Protocol of the European Convention on Human Rights (art. 1 EP ECHR) sets out the right to peaceful enjoyment of property. The following questions need answering to assess whether an unjustifiable violation on the right of property is involved:

  1. Does it involve property as referred to in art. 1 EP ECHR?
  2. Does it involve interference with the peaceful enjoyment of this property?
  3. Is there a statutory basis that is sufficiently admissible, precise and foreseeable? 
  4. Is the interference justifiable?

The last test hinges on the legitimate public interest of the related statutory provision and, in addition, whether it is proportionate (fair balance). In this respect the Supreme Court distinguishes a fair balance at the regulatory level and at the level of individual taxpayers. This specific case dealt with the question whether limiting the possibility to carry forward corporate losses (which limitation had been introduced with retroactive force) is contrary to art. 1 EP ECHR.


An entrepreneur operated a garden centre and horticultural company until early 2002. It was a loss-making operation. A decision on the losses the entrepreneur had incurred, had set those losses at well over EUR 135,000 as at year-end 2002. In 2012, the entrepreneur wanted to settle the losses incurred in 2002 and in prior years. But the inspector refused this loss set-off, as loss carry forward is capped at nine years since 2007. According to a transitional provision losses incurred through 2002 at the latest could still be settled up to the fiscal year 2011. According to the entrepreneur, in limiting the carry forward of corporate losses the legislature acted contrary to art. 1 EP ECHR.

Broad margin for judgment

In the eyes of Supreme Court, though, limiting the possibilities for loss set-off is not contrary to art. 1 EP ECHR. If the alleged contrariety with this provision is based on the argument that the abolition of a favourable tax measure has violated the legitimate expectations of the parties involved, the key issue to be examined is the fair balance between the - legitimate – public interest objective pursued with the abolition and protection of individual interests. When it comes to tax issues the legislature has a wide margin for judgment. Not all changes to the tax system trigger a violation of the peaceful enjoyment of property as prohibited under art. 1 EP ECHR. In all reasonability, citizens cannot generally rely on the tax system not to change. Implementing the limited loss carry forward falls within the wide margin for judgment. In addition, the Supreme Court notes that the decision on determining the loss that the entrepreneur had received merely served to provide certainty about the loss amount. Such a decision does not provide for an unconditional right of the taxpayer to set off the losses determined.

Source: HR 13 April 2018, 16/04786, ECLI:NL:HR:2018:589

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