Opinion of the Advocate General — ECLI:EU:C:2024:238
Date: 2024-03-14
Language of the case: Dutch
Procedure: Reference for a preliminary ruling
Origin: Netherlands

Summary  C-585/22 – 1 
Case C-585/22 
Summary of the request for a preliminary ruling pursuant to Article 98(1) of 
the Rules of Procedure of the Court of Justice 
Date lodged:  
7 September 2022 
Referring court:  
Hoge Raad der Nederlanden (Netherlands) 
Date of the decision to refer:  
2 September 2022 
Appellant:  
X BV 
Respondent:  
Staatssecretaris van Financiën 
  
Subject matter of the main proceedings 
The main proceedings concern the appeal in cassation lodged by the appellant 
with the Hoge Raad (Supreme Court) against the judgment of the Gerechtshof 
Arnhem-Leeuwarden (Arnhem-Leeuwarden Court of Appeal), which ruled in 
essence that the limitation on the deduction of interest in Article 10a of the Wet op 
de vennootschapsbelasting 1969 (Law on Corporate Income Tax of 1969) is not 
contrary to the freedoms enshrined in Articles 49, 56 and 63 TFEU.  
Subject matter and legal basis of the request for a preliminary ruling 
The request for a preliminary ruling brought under Article 267 TFEU concerns the 
question whether EU law precludes national legislation on the basis of which the 
deduction of interest in respect of a debt contracted by a taxable person with a 
related entity for the purpose of acquiring or extending an interest in another 
entity, which subsequently becomes a related entity, is not possible where there is 
an artificial arrangement, irrespective of whether the debt concerned was 
contracted at arm’s length and, in the negative, irrespective of whether companies 
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SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-585/22 
 
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that are independent of one another would have agreed on a lower interest rate, as 
well as the question whether it is relevant in this regard that the entity concerned 
was already an entity related to the taxable person before that acquisition or 
extension, or only subsequently becomes such an entity.  
Questions referred for a preliminary ruling 
1. Are Articles 49 TFEU, 56 TFEU and/or 63 TFEU to be interpreted as 
precluding national legislation under which the interest on a loan debt 
contracted with an entity related to the taxable person, being a debt 
connected with the acquisition or extension of an interest in an entity which, 
following that acquisition or extension, is a related entity, is not deductible 
when determining the profits of the taxable person because the debt 
concerned must be categorised as (part of) a wholly artificial arrangement, 
regardless of whether the debt concerned, viewed in isolation, was 
contracted at arm’s length? 
2. If the answer to Question 1 is in the negative, must Articles 49 TFEU, 56 
TFEU and/or 63 TFEU be interpreted as precluding national legislation 
under which the deduction of the interest on a loan debt contracted with an 
entity related to the taxable person and regarded as (part of) a wholly 
artificial arrangement, being a debt connected with the acquisition or 
extension of an interest in an entity which, following that acquisition or 
extension, is a related entity, is disallowed in full when determining the 
profits of the taxable person, even where that interest in itself does not 
exceed the amount that would have been agreed upon between companies 
which are independent of one another?  
3. For the purpose of answering questions 1 and/or 2, does it make any 
difference whether the relevant acquisition or extension of the interest 
relates (a) to an entity that was already an entity related to the taxable person 
prior to that acquisition or extension, or (b) to an entity that becomes an 
entity related to the taxpayer only after such acquisition or extension?  
Provisions of EU law and national law relied on  
Treaty on the Functioning of the European Union (TFEU), Articles 49, 56 and 63. 
Wet op de vennootschapsbelasting 1969 (Law on Corporate Income Tax of 1969; 
text applicable in 2007), Article 10a. 
Succinct presentation of the facts and procedure in the main proceedings 
1 The appellant is a company belonging to a group of affiliated companies 
consisting of company A, company B and company C. In 2000, the appellant 
STAATSSECRETARIS VAN FINANCIËN 
 
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acquired the majority shareholding in company F. Following that acquisition, 
company F became an entity related to the appellant. The appellant financed this 
transaction through loans taken out with company C. The latter company granted 
these loans from its own funds, which it had obtained shortly before through a 
capital injection by company A. 
2 Under the Wet op de vennootschapsbelasting 1969, when profits are being 
determined, the interest on debts contracted with a related entity, among other 
things, may not be deducted in so far as such debts relate to the acquisition or 
extension of an interest in an entity which, after such acquisition or extension, is 
an entity related to the taxable person. Where this applies, the deduction of the 
interest concerned will be disallowed in full, even if those interest expenses are 
equal to the interest expenses that would have been agreed upon between 
companies which are independent of one another. This rule applies both to the 
financing of an acquisition or extension of an interest in an entity that was already 
an entity related to the taxable person prior to such acquisition or extension 
(internal restructuring) and to the financing of an acquisition or extension of an 
interest in an entity that only subsequently becomes an entity related to the 
taxpayer (external acquisition).  
3 However, the deduction of these interest expenses is possible if the taxable person 
can demonstrate that there are predominantly sound business reasons for the debt 
and for the associated legal transaction (the acquisition or extension of the 
interest).  
4 This restriction on the deduction of interest aims to prevent the erosion of the 
Netherlands tax base by completely artificial arrangements, where interest 
expenses are due on debts contracted arbitrarily and without business reasons.  
5 The Gerechtshof held that that legislation is not contrary to EU law because the 
restriction placed by that legislation on the freedoms enshrined in Articles 49, 56 
and 63 TFEU is justified. After all, the aim of that legislation is to prevent the 
Netherlands tax base from being eroded through abusive practices whereby 
interest expenses are deducted from profits, whereas in reality those interest 
expenses do not incur any taxes. According to the Gerechtshof, that legislation is 
proportionate, as the taxable person has the opportunity to demonstrate that the 
choice to finance the acquisition or expansion of the interest in question by means 
of a loan from a related entity is based on commercial considerations.  
6 The appellant has lodged an appeal in cassation against that judgment with the 
referring court. 
The essential arguments of the parties in the main proceedings 
7 The appellant submits that it must be inferred from the Court of Justice’s 
judgment of 20 January 2021, Lexel AB, C-484/19 (‘the Lexel judgment’) that 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-585/22 
 
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transactions which are carried out at arm’s length are not purely artificial 
arrangements. 
8 The Lexel judgment relates to Swedish legislation under which interest expenses 
may not be deducted if the main reason for incurring the debt is the desire to 
provide a group of associated companies with a substantial tax benefit. According 
to the Court of Justice, grounds relating to the fight against tax evasion and tax 
avoidance cannot justify that legislation, since transactions which are carried out 
at arm’s length and, consequently, are not purely artificial arrangements, may fall 
within the scope of that legislation (paragraph 56). Furthermore, the principle of 
proportionality in EU law requires that the refusal of the right to a deduction 
should be limited to the proportion of that interest which exceeds what would 
have been agreed between companies which are independent of one another 
(paragraph 51). 
9 According to the case-law of the referring court, debts which do not reflect 
economic reality and are intended merely to create a deductible expense are of a 
wholly artificial nature, even if they have been carried out on an arm’s length 
basis. Furthermore, the referring court proceeds on the assumption that the 
principle of proportionality in EU law does not preclude a total refusal to deduct 
interest in such cases.  
10 In that light, the referring court interprets the Lexel judgment to mean that the 
Court of Justice did not rule that transactions, such as the contracting of debts with 
an entity related to the taxable person, do not, by definition, constitute wholly 
artificial arrangements if they are concluded on an arm’s length basis.  
Succinct presentation of the reasoning in the request for a preliminary ruling 
11 However, the referring court is uncertain as to whether its view is correct.  
12 First, the tax literature also supports the view that transactions which are carried 
out at arm’s length, by virtue of that very fact cannot constitute wholly artificial 
arrangements. Thus, if the terms of an intra-group loan are ‘at arm’s length’, there 
can be no question of abuse. This view finds support in paragraph 56 of Lexel, 
according to which transactions which are carried out at arm’s length ‘are not 
purely artificial or fictitious arrangements’.  
13 Second, having regard to paragraph 51 of the Lexel judgment and the judgment of 
the European Free Trade Association Court of 1 June 2022, PRA Group Europe 
AS, it has also not been established whether the total refusal of the right of 
deduction complies with the principle of proportionality under EU law.  
14 Third, the referring court questions whether it matters in this regard that 
Article 10a of the Wet op de vennootschapsbelasting 1969 applies to the financing 
of both an internal restructuring and an external acquisition. Indeed, the Swedish 
legal regime of the Lexel judgment applies only to the financing of an internal 
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restructuring. However, it cannot be ascertained from the Lexel judgment whether 
the Court considered this circumstance to be relevant when making its assessment.