The Amsterdam Court of Appeal ruled that the right to a dividend of CHF 104 mln became part of the assets of X BV on 1 July 2011. The foreign exchange result due to a currency fluctuation realized by the payment of the dividend on August 4, 2011, is therefore taxed and does not fall under the participation exemption that can be applied on the initial dividend distribution to X BV[1] by its subsidiary.

X BV, being the taxpayer, is part of an international group and mainly holds participations in group companies. The group compiled  a step-by-step plan in 2011 within the group that should lead to the elimination of $ 1.4 billion in group loans from the books. To this end, on 1 July 2011 the Swiss C Sàrl (Subsidiary of X BV) decided to pay CHF 104 mln in dividend to X BV. After the decision for the initial dividend distribution from C Sarl to X BV, On 4 August 2011 the interim dividend of CHF 104 mln was paid to X BV. X BV subsequently distributes the dividend further to A, its parent. In X BV’s CIT return, the company uses the exchange rate of August 4, 2011 and recognizes an amount of € 95.4 mln in connection with the dividend passed through. However, the inspector is of the opinion that the dividend of A should be valued at the exchange rate of July 1, 2011 (€ 84,8 mln), at the time the decision was made and not at the time of the actual dividend distribution. Therefore X BV should account for a currency result of € 10,6 mln. X BV states that on July 1, 2011 a dividend has been paid in USD instead of a dividend in CHF.

The Amsterdam Court of Appeal ruled that it has not become plausible that on 1 July 2011 a dividend in USD would have been distributed instead of a dividend in CHF. Indeed, it is certain that on 1 July 2011 the shareholders of C Sàrl unconditionally decided that a dividend of CHF 104 mln would be paid. That right to receive the dividend amount became part of the assets of X BV on 1 July 2011. Any changes in the value of that right after that date can therefore no longer be regarded as a benefit that stems from the participation in C Sàrl. And therefore the currency fluctuation is taxable and does not fall under the participation exemption of X BV.

Source: Rechtspraak