On 5 October 2026, the District Court of North Holland ruled that a Dutch private company (BV) charging excessive interest on a loan to its director-major shareholder (DGA) cannot correct the resulting overstatement of profit via the “foutenleer” (error correction doctrine) in the oldest open tax year. The court determined that the excessive interest does not constitute a balance sheet error but rather an incorrect profit calculation, which falls outside the scope of the error correction mechanism under Dutch tax law. This decision clarifies the limits of the foutenleer for related-party financing arrangements and reinforces the arm’s length principle for intra-group loans.
Key Takeaways
- Error Correction Doctrine Limited: The foutenleer applies only to genuine balance sheet errors, not to disputes over arm’s length pricing or profit allocation.
- Arm’s Length Enforcement: Tax authorities can challenge excessive interest as a transfer pricing adjustment rather than a correctable error, potentially leading to additional assessments for multiple years.
- Practical Compliance: Companies must ensure DGA loan terms comply with market rates at inception to avoid irreversible tax consequences.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement