Tax aspects of WHOA arrangements

The role of the Dutch Tax Authorities within a WHOA arrangement is crucial, given its preferential status as a creditor and the fact that tax considerations play a part in virtually every arrangement.

Fixation date for tax debts

Within a WHOA process, the fixation date is of significant importance. This date, which the debtor may determine, establishes which debts and creditors are included in the arrangement. For tax liabilities, this means that only tax debts existing on the fixation date are included in the agreement. New tax obligations arising after this date fall outside the scope of the arrangement and must be paid in full. It is therefore essential for companies to have a clear overview of their tax position as of the fixation date.

If the fixation date falls mid-month (or mid-quarter), tax debts that have materially arisen before that date fall under the WHOA arrangement, but tax incurred during the remaining part of the month or quarter remains fully payable. This requires companies to carefully analyse which tax returns and obligations are covered by the arrangement and which must be settled separately. It is advisable to align these matters early in the WHOA process with the Tax Authorities.

Tax authority policy on settlement proposals

The Dutch Tax Authorities maintain a policy that, in the case of a creditor arrangement, they are entitled to receive double the percentage offered to unsecured creditors. This means that if regular creditors receive 20% of their claims, the Tax Authorities will seek 40%. This policy is laid down in the 2008 Collection Guidelines (Leidraad Invordering 2008). Furthermore, the amount offered to the Tax Authorities must represent a better return than what they would expect to receive in the event of bankruptcy.

In response to the COVID-19 crisis, the Tax Authorities relaxed this policy between 2022 and April 2024, accepting the same percentage as regular creditors. Since April 2024, however, the original policy—requiring double the payout—has been reinstated.

In legal literature, there is an ongoing discussion about whether the tax claim should be split (“bifurcated”) into two parts: one equal to the amount that would be paid out in bankruptcy and the remainder of the tax debt. The idea is that the covered portion would be paid in full under a WHOA arrangement, while the remaining part would receive the same percentage as other unsecured creditors. The Tax Authorities have rejected this proposal, and no court ruling has yet been issued on the matter. Therefore, it is strongly recommended that any WHOA settlement proposal be drafted in accordance with the current guidelines of the Tax Authorities.

Change to the debt remission profit rule as of 1 January 2025

As of 1 January 2025, a new rule has been introduced regarding the interaction between debt remission profit and loss relief. Previously, any amount released through a debt settlement—such as in a WHOA agreement—was treated as taxable income. From 2025, this debt remission profit must first be offset against losses from the same year and any carried-forward losses from previous years. Any remaining remission profit will then be fully exempt from corporate income tax. This means that companies will not owe corporate tax on the exempt portion of remission profit in the year of remission.

This change represents a significant improvement for companies seeking to enter a WHOA arrangement. Under the previous regime, treating debt remission as taxable income posed a barrier for financially distressed companies. With the new rule, debt remission is largely tax-exempt, making it easier for companies to reach an arrangement and pursue a healthy restart without the burden of additional tax liabilities.

Conclusion

The Tax Authorities’ position in WHOA arrangements has evolved over the years, including temporary relaxations to support businesses during economic downturns. The introduction of the new remission profit rule as of 1 January 2025 aims to give businesses more breathing room when seeking debt relief. It is essential for companies to remain informed about these developments and to understand the financial and tax implications for their restructuring strategies.

More information

Would you like to know more? Visit our WHOA page or contact Christiaan Mensink, Wladimir Schmidt or Daniël Huijboom directly. Together, they have advised on more than twenty WHOA cases, acting as company advisers, court-appointed observers, or legal counsel to shareholders or creditors.