Businesslike loan or not?

The Gelderland Court recently provided clarity on when a loan between affiliated companies should be considered fiscally (un)businesslike. The case involved a lender who wanted to deduct a loss on a loan after the borrower was dissolved. The Tax Authorities refused this deduction, citing the 'unbusinesslike loan jurisprudence'.

Facts: In 2006, a real estate company provided a loan of €180,000 to an affiliated company for the purchase of a skid track. The shareholder of the lender also owned 50% of the shares in the borrower. There were no written loan terms, securities, or repayment schedules. In 2017, the borrower sold the skid track for €45,000, while it was later resold for over €1.2 million. The lender wrote down the loan by €142,504, but the inspector corrected this as an unbusinesslike loan.

Court's Judgment: The court ruled that the inspector had to prove that the loan was unbusinesslike. The absence of securities and repayment schedules does not automatically make a loan unbusinesslike. The inspector could not demonstrate that no independent third party would have provided the loan. The value of the skid track at the end of 2016 was around €1 million, which provided sufficient security. Therefore, the loan was considered businesslike, and the write-down could be charged to the taxable profit.

Conclusion: This ruling clarifies that the content of a loan is more important than its form. The inspector must prove that the risk was so great that no one would provide the loan. Sufficient security with the borrower indicates a businesslike loan.