If your company is going through financially hard times, a restructuring procedure under the Court Approval of a Private Composition Act (‘WHOA’) may offer a solution. The WHOA gives companies the chance, under certain conditions, to achieve a composition with their creditors that provides for a variation of these creditors’ rights. This is mainly done by restructuring the debt burden that weighs too heavily on the business operations. After this necessary debt restructuring, the enterprise can go on growing again. The Dutch Tax Administration will often be one of the main stakeholders. In this article, we will discuss several tax aspects that we encounter regularly in our WHOA practice.
In this context, a special and leading position is reserved for the Tax Administration.
In this article we will discuss 1) the qualification of tax debts in a WHOA composition, 2) the policy of the Tax Administration on the restructuring of its claim in a WHOA procedure, and 3) the adverse tax consequences of a remission of debts after a WHOA composition, and how the legislator wishes to accommodate practitioners in this regard.
1. Qualification of tax debts in a WHOA composition
A WHOA route uses a reference date or ‘fixation date’, which usually lies close to the start date of the route. The composition will only include debts that arose before or on this date – also known as 'WHOA debts'. In the composition, the company proposes to the creditors of the WHOA debts to pay a certain percentage, while the remainder of the WHOA debt will be remitted. Any new debts pertaining to the period after the fixation date will not be covered by the WHOA composition and will have to be paid in full by the company.
In practice, the question whether a debt has arisen before or after the fixation date may spark a debate. This distinction is important, as it determines whether a debt will be included in the composition or will have to be paid in full. Another question that arises is how to qualify a tax debt of which the assessment was imposed after the fixation date, whereas this debt relates to the period before the fixation date. For example: if your company files a quarterly tax return for Q3 of 2024 (July, August and September), and the fixation date is set at 1 September 2024, the Tax Administration will impose the assessment for Q3 in October 2024, after the fixation date. Should this debt be qualified as a WHOA debt, a new debt, or can the tax debt be ‘broken up’ into two parts?
In our opinion, the last answer is correct. The obvious thing to do is to start from the ‘material’ time of inception of the tax debt, as is also done in bankruptcy law. It follows from this arrangement that the material tax debt arises from day to day, rather than (only) at the time when the Tax Administration eventually imposes the full assessment. This approach is supported by several sources, including the Leidraad Invorderingswet [Collection of State Taxes Act Guidelines] and the casebook judgment Aerts q.q. / ABN AMRO.[1]In summary, this judgment confirms that it is irrelevant for the appearance of a tax debt whether or not the debt is already claimable and whether or not an assessment has already been imposed.
In short, if the material time of inception of part of your company's tax debt relates to the period before the fixation date, this part can be included in the WHOA composition, and need therefore not be paid in
2. Tax Administration receives double percentage
As mentioned above, a WHOA composition offers creditors of the company a percentage of their outstanding WHOA claims. The Tax Administration’s policy dictates that the recipient be paid at least the double percentage of his WHOA claim compared to ‘ordinary’ creditors who have an unsecured claim.[2] For example: if an ‘ordinary’ unsecured creditor is paid 10% of his claim, the Tax Administration must receive 20%.[3] Besides, the Tax Administration must be placed into a separate class in order to make its statutory preference sufficiently apparent[4], and the Tax Administration cannot be worse off than it would be in a bankruptcy.[5]
3. Legislator agrees to adjust the exemption from debt relief income in corporation tax; mitigating effect for companies
Finally, upon reaching a successful WHOA composition you will have to pay attention to the potential tax consequences of a partial remission of debts. The Tax Administration regards the remitted portion of the debts as profits, which means that the company will have to pay corporation tax on this amount, even though the company is in a financially difficult situation. This may be problematic at a time when the company is trying to relieve its debt burden and regain its financial health.
To prevent the company from getting into more trouble, on certain conditions it may use the exemption from debt relief income. This way the company will not have to pay the full tax on the remitted amount. However, this exemption applies only to the portion of the debt relief income that is higher than the tax loss of the year concerned, and the tax losses from preceding years to be carried forward. An important restriction applies here: tax losses can only be fully set off against taxable profits up to an amount of EUR 1 million. For losses exceeding this amount, only 50% of the loss can be set off.[6]
This means that if the company’s losses are higher than EUR 1 million and the debt relief income in that same year exceeds this amount, the company will still have to pay corporation tax. In spite of the remission of debts, a risk of taxation will therefore remain, which may hamper the success of the WHOA composition and the continuation of the company.
The legislator recently acknowledged that these tax rules undermine the objectives of the WHOA. In a bill of 17 September 2024, it was suggested to apply a full exemption to situations involving loss carryforwards above EUR 1 million, as far as the debt relief income exceeds the other losses incurred in that year.[7] This measure would give companies more room to recover financially after a restructuring operation. The bill was adopted by the Lower House of Parliament on 14 November 2024 and was approved by the Senate on 17 December 2024. The act will enter into force on 1 January 2025.
Would you like to discuss this? Please contact us
Please contact Bart de Man, Jeroen Postma or Marleen Anneveld to discuss how we can assist you in navigating the (fiscal) challenges of a WHOA route, and the restructuring of your company, so that you can focus on the recovery and continuation of your company.
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[1] Article 19.2.1 Leidraad IW 2023 en Instructie Invordering en Belastingdeurwaarder (IIB) and Supreme Court 26 June 1998, ECLI:NL:HR:1998:ZC2690 (Aerts q.q./ABN AMRO), ground 4.9.
[2] Article 26.3.5 Collection Guidelines 2008 and Article 22 Implementing Regulation Collection of State Taxes Act.
[3] However, an exception applies to so-called unsecured SME creditors, who must receive a minimum of 20% of their claim under the WHOA (see Section 374 (2) and Section 384 (4) under a of the Bankruptcy Act ‘BA’)). In that case, the Tax Administration does not have to receive 40%. A company qualifies as an SME creditor if at least two of the following three criteria are met on two consecutive balance sheet dates: (i) a net turnover of less than EUR 12,000,000, (ii) a balance sheet total of less than EUR 6,000,000, and (iii) fewer than 50 employees.
[4] Section 384 (4) under b BA (the ‘absolute priority rule’) and Article 73.3a.2 under 1 Collection Guidelines.
[5] Section 384 (3) BA (the ‘best interest of creditors test’) and Sections 21 (1) and 22 (3) Collection of State Taxes Act 1990.
[6] Section 20 (2), Corporation Tax Act 1969.
[7] Bill for the Amendment of some tax acts and some other acts (Tax Plan 2025) dated 17 September 2024, paragraph 5.18.
