Documents published on tax treatment of earn-out arrangements and vendor loans

The Dutch Tax Authorities published their view on the tax treatment of earn-out arrangements and especially on the deductibility of interest on vendor loans which may not be deductible under certain circumstances. In view of the Dutch tax authorities interest on vendor loans is not deductible when the loan amount is uncertain, if the interest rate is not at arm’s length and in case of variable repayment moments of the loan.


Recently, the Dutch tax authorities released their perspective on the tax treatment of so-called vendor loans – and how these loans should be accounted for tax purposes. The tax authorities are of the opinion that – besides value changes – interest payments on vendor loans are not deductible (or not taxable),. In the event of a purchase/disposal of a subsidiary whereby the purchase price is (partly) financed with vendor loans, we advise you to consider the tax consequences carefully. The reason is that such a loan can fall within the scope of the earn out provisions.

An earn-out is a contractual provision stating that the seller of a business is to obtain future compensation if the business achieves certain financial goals. The differing expectations of a business between a seller and a buyer are usually resolved through an earn-out. The value changes of an earn-out arrangement are exempt by virtue of application of the Dutch participation exemption regime and therefore neither deductible nor taxed. This entails that if for instance a company purchases a subsidiary for € one million , with a subsequent performance related earn-out payment of € 100.000 , the additional € 100,000 received is completely exempt from taxation (controversially a.€ 100, 000 underperforming repayment obligation is not deductible. This rule also applies to accrued interest.

Vendor loans

In practice, apart from ordinary earn-out arrangements, vendor loans are also used to finance the purchase price of a participation. In 2018, the Dutch Supreme Court ruled that a vendor loan falls under the earn-out legislation if there is a connection between the amount of the vendor loan, the purchase price of the participation and the performance of the participation after purchase. Consequently, the value changes of a vendor loan are exempt from taxation under the participation exemption regime.


As part of a WOB-request (Government information can be requested for under the Public Access to Government Information Act; Wet Openbaarheid Bestuur abbreviated as “WOB”), a discussion memo was released by the tax authorities in which the tax treatment of vendor loans was discussed.

According to the tax authorities, the a vendor loan being subject to the earn-out arrangements is recognised when there are material or commitment-related uncertainties:

  • the annual repayment of the loan is linked to the upcoming dividend of the transferred participation;
  • loans that include uncertain elements such as a non-business like interest rate and/or uncertainties about the actual moment of repayment.

The first situation is completely covered by the earn-out provisions. The second situation is more nuanced. Value changes and adjustments of these loans may fall under the participation exemption regime. Moreover, interest payments on the loan – in case the vendor loan qualifies as an earn-out payment – are not deductible (or taxed) according to the authorities. The discussion memo explains this in more detail.

According to the Dutch tax authorities, in the event of such vendor loans, the participation exemption regime would also apply to the agreed contractual interest and thus not only to the accrued interest.

The tax authorities seem to take the position that if a loan is accounted for in a foreign currency, or cryptocurrency for that matter, it does not necessarily mean that the nature of the extent of the instalments must become uncertain (e.g. due to valuta risks). Therefore, a vendor loan in a foreign currency, in crypto or in “kind” does not automatically fall under the scope of the participation exemption.

If you would like to know if the foregoing is relevant for your situation or to what extent you could take a different position than the tax authorities, please do not hesitate to contact your HVK Stevens Tax consultant.

For more information, please contact:

HVK Stevens Logo

HVK Stevens professionals have legal, tax and financial knowledge and experience

HVK Stevens logo


HVK Stevens
Prins Bernhardplein 200
1097 JB Amsterdam
+31 (0)20 76 30 900


HVK Stevens Rotterdam
Westerkade 2B
3016 CL Rotterdam
+31 (0)10 476 88 33


HVK Stevens
4, Avenue Jean-Pierre Pescatore,
L-2324 Luxemburg,
Grand Duchy of Luxembourg


HVK Stevens
Landhuis Joonchi Kaya Richard
3014 Beaujon Willemstad


HVK Stevens
Aldgate Tower
2 Leman Street, E1 8FA