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The Netherlands - In a recent decision a Dutch tax court concluded that the income received on Australian redeemable preference shares can be received tax free by the Dutch holding company provided it owns more than 5% of these shares in the Australian company. At the level of the Australian company, the payment on the redeemable preference shares was considered an interest expense and deductible for Australian tax purposes.

The Dutch court concluded that this kind of shares are similar to cumulative preference shares and because of that must be considered as shares instead of a loan. Therefore the income received on these shares is characterized as dividend and can be received tax free based on the Dutch participation exemption.

The most important characteristics of the Australian redeemable preference shares (rps) in this case were:
- the shareholders of rps did not have voting rights except for special situations;

- the profits on these shares were based on a climbing percentage of the capital sum;

- for receiving the financing fee and restitution of the capital sum the rps have priority to regular shares; and

- the redeemable preference shares were redeemable directly and had to be redeemed within maximum ten years after issue of shares.

 Corney Versteden

HLB Van Daal & Partners
Prof. Asserweg 8
5144 NC Waalwijk, Netherlands

Phone: +31 (0)416 330 505

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