Dutch Supreme Court confirms broad application of Article 10a CITA and fraus legis in cross-border interest deduction case

On 1 May 2026, the Dutch Supreme Court confirmed that interest deductions in an international financing structure may be denied even where the recipient of the interest is, in principle, subject to a compensatory tax charge. For periods from 1 January 2008 onward, the outcome follows from Article 10a(3)(b) of the Dutch Corporate Income Tax Act 1969. For earlier periods, the Dutch Supreme Court held that the deduction could also be denied under the doctrine of fraus legis.

The case concerned a banking joint venture in which a Dutch entity was used to create interest deductions against returns on a bond portfolio. The judgment is published as HR 1 May 2026, no. 21/04746, ECLI:NL:HR:2026:736. The Dutch Supreme Court also confirmed, with reference to HR 16 January 2026, ECLI:NL:HR:2026:60, that applying Article 10a CITA and fraus legis in abuse cases does not conflict with the freedom of establishment under Article 49 TFEU.

From a practical perspective, the decision is relevant for cross-border acquisition, treasury and joint-venture structures involving Dutch interest deductions and foreign participation, hybrid or low-taxed elements. It shows that compensatory taxation is not a safe harbour and that the business rationale for both the debt and the related legal transactions must be robust and demonstrable.

Businesses should therefore assess financing arrangements not only under the wording of Article 10a CITA, but also against the broader abuse-of-law standard under fraus legis and EU abuse principles.

Source: HR 1 May 2026, no. 21/04746, ECLI:NL:HR:2026:736