Tax loophole costs the Netherlands €1.7 billion
In de media image: Arjan van den Berg on Unsplash
The tax loophole revealed last year by the ‘Financieele Dagblad’ turns out to have much greater consequences than expected. Jan van de Streek, Professor of Tax Law, spoke to the FD: 'This concerns a tax leakage of major proportions'.
In the summer of 2024, the FD newspaper uncovered a serious tax loophole. In recent years, German investors had spent more than €11 billion on real estate in the Netherlands, mainly office buildings and hotels in prime locations, without paying corporate income tax on profits. The estimated damage? The shocking amount of €1.1 billion.
However, this did not take into account the so-called 'hidden reserves': the difference between the original purchase price of a property and the current, often much higher value. Tax only has to be paid on that difference when the property is sold. Given the total book profit of €2.4 billion, this amounts to an additional tax loss of €600 million. If you add that to the previous loss, this tax loophole will cost the Dutch treasury a total of about €1.7 billion.
So, it’s not surprising that Van de Streek considers this to be a ‘tax leakage of major proportions’. According to the professor, the problem arose as a result of outdated and flawed legislation dating back to 1969. It states that foreign legal entities, so including German investment funds, only have to pay tax on profits if these qualify as 'doelvermogen’, i.e. special-purpose funds. The Supreme Court ruled last year that this is not the case, because there are several private investors participating in the German funds. According to Van de Streek, the fact that the Ministry of Finance was so surprised by this news is hard to fathom: 'The legislature could have closed this loophole much sooner with emergency legislation. I argue that this should be done retroactively.'
More information?
Read the full FD article (€, in Dutch)
Read the follow-up articles on 31 May and 1 June (€, in Dutch)