No demerger exemption for transfer of property portfolio | Deloitte Netherlands

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No demerger exemption for transfer of property portfolio

The Supreme Court has ruled that the acquisition of property by the interested party does not fall under the demerger exemption. One of the main objectives of the property demerger was tax avoidance.

27 January 2022

No demerger exemption for transfer of property

The interested party is an unlisted property fund. The fund had agreed with a Dutch pension foundation to take over its property portfolio. On 9 August 2012, the pension foundation transferred its property portfolio to a private limited liability company (BV) that it had incorporated, through a (share premium) contribution. The very same day, the BV transferred the property it had received to the property fund and the pension foundation acquired shares. The interested party paid transfer tax on the acquisition of the property, but then objected to the self-assessed tax payment.

It is disputed whether the demerger exemption applies for transfer tax purposes. While the Court had ruled it does, the Court of Appeal reached an opposite conclusion. According to the Court of Appeal, the transaction was structured in such a way that its main objective was to avoid transfer tax. Application of the exemption would then be in contravention of the aim and purpose of the Merger Directive. Both for the pension foundation and the interested party it had been paramount to design the transaction in the most favourable structure for tax purposes possible.

In cassation, the interested party argued that the transaction’s (non-)arm’s length design could not be viewed separately from its ultimate arm’s length objective. The Supreme Court though, concurs with the Court of Appeal’s decision, referring to the opinion of Advocate General (AG) Wattel. His conclusion was that no matter how at arm’s length the ultimate objective may be, the process in reaching it, too, must be predominantly at arm’s length. The demerger exemption in property transfer tax must be assessed in the same way as in corporate income tax.

The AG then answered the question of whether the chosen design of the transfer can be regarded as an ‘artifice’ or ‘an artificial construction (in whole or in part)’. According to CJEU case law, two criteria are set in this respect:

  1. The parties must have the predominant intention to obtain a tax benefit; and
  2. Obtaining the benefit must be in contravention of the aim and purpose of the law.


The Court found that none of the documents included a non-tax reason for this transaction design, while several of the documents stressed that the contribution and demerger had to be designed in the most favourable way possible for tax purposes. Hence, the Court could argue that the first (subjective) criterion had been fulfilled.

The same applies to the second (objective) criterion. The purpose of the abuse clause in the demerger exemption is to prevent transfer tax from being an obstacle in the choice of the economically most desirable legal form of the company or the positioning of immovable property within a group, while at the same time preventing abuse or misuse of the exemption by imposing a continuity requirement and preventing a sale from being disguised as a contribution. In this case, the levy neither prevented the most desirable legal form, nor the positioning of the property. On the contrary, ‘transferring’ the property to a third party effectively constituted a disposal disguised as a demerger. That is not what the demerger exemption is intended for.

The conclusion is that the Court of Appeal was right to deny the demerger exemption. The other pleas in law cannot lead to appeal in cassation either. The Supreme Court declared the appeal in cassation to be unfounded.


Source: Supreme Court 14 January 2022, ECLI:NL:HR:2022:17

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