The company (BV) forgave the "bad" debt to the sons of its shareholders, thus increasing the losses. However, the tax service and the court considered such actions unlawful, since there was no justification from the business point of view.
How was it?
Remind you B.V. (besloten vennootschap) is a private limited company in the Netherlands, whose capital is divided into shares. You can learn more about the structure, taxation and other features of this organizational and legal form of doing business from our review.
And now to the story itself. The director of BV, together with his partner, owned all the shares of the company. About a decade ago, BV loaned money to the sons of its shareholders to buy rims in China (here are the wheels!). The borrowers never returned the money, and in 2016 BV wrote off this “bad” debt, increasing the losses accordingly.
The position of the tax service and the court
The tax service, which was upheld by the Zeeland-West-Brabant court, believes that the cancellation of the debt is not justified by objective reasons: both borrowers have sufficient income to pay off their debts to BV. The court considered this debt unrelated to the business. Borrowers initially did not intend to give it back, because they counted on family ties with the company's shareholders. It was also unreasonable on their part to ask for a delay in the claims for debt collection.
Position of BV and its shareholders
BV and its shareholders say that the company made a demand to repay the debt, however, only to one of the sons. However, the court finds this argument implausible, since it was used only at the appeal stage.
"Moral of the Story"
Debts are repayable, even if they are debts to a company owned by your father or mother. As we see in our story, the court decided to remove the amount of debt from write-offs to reduce BV profit, leave the debt to be paid off by the sons of shareholders, and pay the profit itself, and even with interest.
Publication Date: 02.11.2022
