Court case widens application of the participation exemption

A report released by Deloitte global transaction services in the Netherlands states that in a recent court case the application of the participation exemption appears to have been widened. For example, if a venture capitalist holds a 33% interest in an investment and there is a seven year, 8% convertible loan, the venture capitalist realises a gain on the convertible loan. The court ruled that the gain realised on the convertible is tax exempt under the participation exemption. Interestingly enough, the court seems to state that it does not seem to be relevant whether the venture capitalist held shares in the investment from the beginning or not (as long as qualifying participation would be obtained after conversion). It is possible that the tax authorities will appeal the courts decision.

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