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TAX NEWS - January 2010

Netherlands: Dutch AG considers nondeductibility of cartel fines compatible with EC law

The Advocate General (AG) to the Dutch Supreme Court opined on 22 December 2021 (as published on 22 January 2022) that cartel fines should not be tax deductible. Dutch law states that expenses related to penalties imposed by Dutch or European public entities may not be deducted.


This Dutch tax law provision has been challenged in several cases before the Dutch lower tax courts. All of the cases involved a penalty imposed on a company by either the European Commission or the Dutch Competition Authority (NMa) in situations where the competition rules had been infringed. In a case before the first instance tax court of Haarlem, the court made a distinction between two elements of a European Commission competition fine: a dispossession of advantages and a punitive element. According to the court, every European Commission fine contains both elements. The amount of the fine is fixed in order to expropriate the commercial profits resulting from the cartel agreement (dispossession of advantage) and subsequently increased to deter companies from concluding such agreements in the future. The tax court of Haarlem determined that the dispossession of advantages aspect could be characterized as a business expense since the related additional cartel profits had been subject to corporate income tax, so that element of the fine could be deducted from the corporate income tax base. The punitive element, however, could not be deducted.

In three other cases concerning fines imposed by the NMa, the competent tax courts of first instance ruled that the entire fine was nondeductible on the basis that a fine imposed by the NMa is not comparable to a European Commission fine. Arguably, however, the Dutch legislation is based on European competition law, so there should be no reason to distinguish NMa fines from Commission fines.

AG opinion

The three cases relating to fines imposed by the NMa were brought before the Dutch Supreme Court.

In his opinion, the AG viewed a fine imposed by the NMa to include both a dispossession of advantages element and a punitive element. The penalty only starts where the dispossession of advantages ends. In other words, the part of the fine exceeding the amount that was necessary to bring the company back to the state it would have been in without the cartel agreements can be considered punitive. The AG, however, concluded that this distinction of elements within the fine is not relevant in determining whether the fine (or a portion thereof) should be deductible from a company's corporate income tax base. According to the AG, the legislative history of the law demonstrates that the Dutch legislature did not intend to create the possibility for fines to be deductible - not even in part.

It is now up to the Dutch Supreme Court to rule on the issue, and it is unclear whether the case will be referred to the European Court of Justice. It is notable, however, that Dutch tax law allows fines imposed by competition authorities in other EU Member States to be deducted in computing Dutch corporate income tax.
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