On 29 June 2023, the Amsterdam Tax Court of Appeal (the ‘Court’) ruled on whether goodwill acquired by the Dutch Ahold group as part of its acquisition of the Belgian Delhaize group can be amortized (as a separate asset) for corporation tax purposes in the Netherlands.
In 2016, the Dutch Ahold parent entity (‘Ahold’) acquired the Belgian Delhaize parent company (‘Delhaize’) through a cross border merger, with Delhaize being the disappearing entity and Ahold the remaining entity. As a result of the merger (i) Ahold recognized a substantial amount (approximately € 6 billion) of Delhaize goodwill, and (ii) Ahold obtained a Belgian permanent establishment through the acquisition of the Delhaize business enterprise. The merger was considered tax neutral in Belgium (which was confirmed by the Belgian tax authorities in a ruling), as a result of which the goodwill was not reported for corporation tax purposes in Belgium. The day after the merger, Ahold hived-off (most of) the assets and liabilities of its Belgian permanent establishment into a newly incorporated subsidiary (‘NewCo’).
Ahold argued that part of the goodwill amount (€ 928 million) was paid to realize synergy benefits in the Netherlands (the ‘Dutch Goodwill’). As the realization of these benefits were expected to result in Dutch taxable profits, Ahold considered that it should be allowed to amortize the Dutch Goodwill for Dutch corporate tax purposes, in the Netherlands, because the Dutch Goodwill should be allocated to Ahold’s Dutch enterprise, instead of its Belgian permanent establishment, and it was not part of the hived-off assets and liabilities in NewCo. The Court agreed with the Dutch Tax Administration that all goodwill, including the Dutch Goodwill, was part of the Belgian business that was acquired, and that this goodwill cannot be separated from that business, as a separately amortizable asset.
The Court’s decision seems in line with Dutch case law pursuant to which taxpayers were not allowed to treat goodwill that was paid for as part of a share acquisition, as a separately amortizable asset. Nevertheless, this case differs essentially from the existing case law, because Ahold paid a considerable amount with the aim of realizing taxable synergy benefits itself, in the Netherlands, which were expected to lead (and did lead) to substantial additional Dutch taxable profits for Ahold in the post-merger years. An interesting transfer pricing question that remains unanswered in this case, is how the synergy benefits should be allocated. It seems that Ahold assumes that the synergy benefits should be allocated to the entity in which they arise. From a transfer pricing perspective, however, synergy benefits should be allocated to the entity that generates them. In accordance, all synergy benefits (the benefits arising in the Netherlands as well as the benefits arising in Belgium) should be allocated between the acquiror, Ahold, and the Belgian enterprise that was acquired. The answer to this question would not have helped Ahold to realize a tax benefit in this case as the merger was tax-neutral in Belgium, but the allocation of synergy benefits is an interesting and often complicated transfer pricing issue, certainly in M&A transactions.
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Mark van Casteren
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