Lending money to your own company is one of the most common things an entrepreneur does. A holding company funds its subsidiary, an owner-director tops up the working capital of the operating company, or a buyer finances an acquisition through a newly incorporated company. In good times nobody gives it a second thought. The problem only surfaces when the borrower runs into difficulty and the loan has to be written down.

At that point a specific piece of Dutch tax case law comes into play: the doctrine of the unbusinesslike loan (in Dutch, onzakelijke lening). Where it applies, the loss on the loan is simply not deductible, even though the loan is real and the money is genuinely gone. In this article we explain what an unbusinesslike loan is, how the Dutch Supreme Court tests for it, what the consequences are, and above all how to structure and document a related-party loan so that the classification does not catch you out. This is not a complete legal handbook, but a practical overview to help you have a focused conversation with your tax adviser before you lend, and before you write anything down.

Table of contents

1. What is an unbusinesslike loan and why it matters

2. First question: is it a loan at all?

3. The core test: the unbusinesslike debtor risk

4. Direction matters: downward, upward and sideways

5. Can the right interest rate fix it? The guarantee analogy

6. The consequence: a non-deductible write-down

7. Special situations: the owner-director and cross-border loans

8. When an unbusinesslike loan becomes a gift

9. Recent developments (2024-2025)

10. How to prevent the classification: a practical checklist

1. What is an unbusinesslike loan and why it matters

An unbusinesslike loan is a loan between affiliated parties that carries a debtor risk which an independent third party would never have accepted. The starting point is that the money really is a loan, both under civil law and for tax purposes. The Dutch Supreme Court accepts that the loan exists, that the interest is deductible for the borrower and taxable for the lender, and that repayment is genuinely owed. What it does not accept is a deduction for the loss when the loan turns out to be worthless.

The doctrine dates back to a landmark decision of the Supreme Court of 9 May 2008. The facts were familiar: there was no written loan agreement, no security had been provided, there was no repayment schedule, and the interest was never actually paid but simply added to the principal. On those facts the court held that the lender had accepted a risk that only a shareholder would accept, not an independent financier. The consequence was that the impairment could not be deducted.

This matters because the situation is so ordinary. Owner-directors who lend to their own private limited company (BV), holding companies that fund a subsidiary, and acquisition structures in which a new company borrows to buy a business are all exposed. The interest keeps flowing through the tax return without any issue for years. It is only when the value falls away that the classification becomes expensive, and by then the terms of the loan can no longer be changed.

2. First question: is it a loan at all?

Before you even reach the question of an unbusinesslike debtor risk, there is a prior question: is the money a loan at all for tax purposes? As a rule the civil-law form is decisive. If the parties have agreed a loan and documented it as such, it is treated as a loan. There are three exceptions where a so-called loan is in reality equity, and where a write-down is off the table from the start.

The first is the sham loan (schijnlening): the parties present the funding externally as a loan but have privately agreed to treat it as capital. The second is the bottomless-pit loan (bodemlozeputlening): at the moment of provision it is already clear that the borrower will never be able to repay, so the money can only have been provided because of the shareholder relationship. The third is the participation loan (deelnemerschapslening): the terms are so close to the characteristics of equity that the loan is treated as equity, for example where the interest is profit-dependent, the loan is deeply subordinated, and there is no fixed maturity.

In each of these three cases the funding is reclassified. Money provided by a shareholder to the company becomes a capital contribution, which increases the acquisition price of the shares for a private individual and the cost base of the participation for a corporate shareholder. Money provided by the company to the shareholder becomes a distribution. Only if none of these three exceptions applies do you move on to the unbusinesslike debtor risk.

3. The core test: the unbusinesslike debtor risk

The heart of the doctrine is a single question. Would an independent third party, on the same terms and in the same circumstances, have accepted the same debtor risk in return for a fixed interest rate? If the risk is so high that no independent party would have taken it, or would only have taken it against an interest rate so high that the interest effectively becomes a share in the profits, then the loan carries an unbusinesslike debtor risk. The lender has accepted that risk in its capacity as shareholder, not as a financier.

The assessment is in principle made at the moment the loan is provided. That is important: a loan that was businesslike when it was granted does not automatically become unbusinesslike simply because the borrower later gets into trouble. However, a loan can become unbusinesslike during its term, for instance if the conditions are amended, the amount or maturity changes, or the borrower’s financial position deteriorates and the lender fails to call the available security or to take timely enforcement action. The burden of proving that a healthy loan later became unbusinesslike lies with the tax inspector, and case law shows that this burden is a heavy one.

Two practical points deserve emphasis. First, a loan is assessed as a whole. You cannot argue that only part of a one million euro loan carries an unbusinesslike risk and that the remainder may still be written down. As soon as part of the loan is unbusinesslike, the entire loan is tainted and no impairment is possible, not even on the businesslike part. That is a reason to consider splitting a large facility into separate loan agreements, so that each is assessed on its own. Second, the factors that matter are exactly the ones an independent lender would care about: a written agreement, adequate security, a realistic repayment schedule, interest that is actually paid rather than rolled up, a sensible term, the ranking against other creditors, and a credible business plan at the time of lending.

4. Direction matters: downward, upward and sideways

The tax consequence of an unbusinesslike loan depends on the direction in which the money flows. A loan runs downward when a parent company or shareholder lends to the company, upward when the company lends to its shareholder, and sideways when one sister company lends to another.

For a downward loan, the non-deductible loss is treated in the capital sphere: it is regarded, in economic terms, as an informal capital contribution to the borrower and it increases the cost base of the participation. For an upward loan, an uncollectible unbusinesslike claim is treated as a distribution by the company to its shareholder, which may fall within the participation exemption. A sideways loan between sister companies is analysed through the common shareholder, as if the money first went up to the shareholder and then down to the other company. Getting the direction right is essential, because it determines both where the loss lands and whether any relief, such as the participation exemption, is available.

5. Can the right interest rate fix it? The guarantee analogy

A natural reaction is to think that the problem can be solved by charging a higher interest rate. Unfortunately it cannot. The whole point of an unbusinesslike loan is that the debtor risk is so high that no fixed interest rate could compensate for it without the interest becoming, in substance, a share in the profits. You cannot price your way out of an unbusinesslike risk.

What the case law does provide is a method for setting the interest that still applies to the loan. The arm’s length rate is determined using the guarantee analogy (borgstellingsanalogie): you look at the interest a third party would have charged if the parent or shareholder had guaranteed the loan. That, generally lower, rate remains deductible for the borrower and taxable for the lender. In other words, the interest continues to run on businesslike terms, but the loss of principal, the write-down itself, remains outside the profit and loss account.

6. The consequence: a non-deductible write-down

The central consequence is straightforward and painful: the impairment on the loan is not deductible. The value has really been lost, but that loss cannot be set against taxable profit or income. For a company the loss falls in the capital sphere and is treated much like a participation, so it does not reduce the corporate income tax base.

There is a mirror image on the borrower’s side. Because the lender cannot take the loss, the borrower does not have a taxable gain when the same unbusinesslike loan is later released or waived. The two sides are treated consistently: no deductible loss for the lender, and no taxable release for the borrower. This symmetry is a deliberate feature of the doctrine and can occasionally work in the taxpayer’s favour, but it is no substitute for the deduction that has been lost.

7. Special situations: the owner-director and cross-border loans

The doctrine has a particular edge for the owner-director who lends privately to their own company. Such a loan falls under the rules for assets a substantial-interest holder makes available to their own company, which are taxed in box 1. The unbusinesslike loan doctrine applies there too, so a write-down in box 1 is refused. The loss is not always gone for good: it typically shifts to the acquisition price of the shares in box 2, where it can still be relieved later, for example on a sale or liquidation. The timing and the box change, which makes early advice worthwhile.

Cross-border structures add a further layer. A Dutch holding company that lends to a foreign subsidiary faces both the unbusinesslike loan doctrine and the arm’s length principle in transfer pricing, and the interaction with the participation exemption needs to be mapped out carefully. In the other direction, an owner-director who has emigrated cannot write down a claim on a Dutch company against Dutch-source income. For internationally mobile entrepreneurs these points are easy to overlook and expensive to get wrong.

8. When an unbusinesslike loan becomes a gift

A more recent development is that providing an unbusinesslike loan can, in some situations, contain a gift from the outset. In a decision of 5 April 2024 the Supreme Court accepted that a gift can be embedded directly in the granting of an unbusinesslike loan. Where one company lends on unbusinesslike terms to another, the enrichment can be treated as a gift from one shareholder to the other; where a parent lends on unbusinesslike terms to a company owned by their child, the enrichment can be a gift to the child.

The practical significance is that a single transaction can trigger two separate consequences at once: a non-deductible loss for income or corporate tax purposes, and a gift for gift tax purposes. Whether a gift actually arises depends closely on the facts, in particular on who is enriched and by how much, but the possibility should be on the radar whenever family members or their companies fund one another.

9. Recent developments (2024-2025)

The doctrine continues to develop through both case law and published positions of the Dutch tax authorities. In particular, the knowledge groups of the tax authorities have published a series of positions that sharpen the practice. These cover, among other things, when a gift arises on an unbusinesslike loan to a child, how interest that is settled after the event is treated, and how an unbusinesslike loan affects the cost base of a participation and the liquidation loss that may eventually be claimed.

The common thread is a steady increase in scrutiny of write-downs on loans within a group or family. In practice the tax authorities are quick to argue that a related-party loan is unbusinesslike, and the taxpayer then carries the burden of showing otherwise. That makes the quality of the file, drawn up at the time of lending rather than reconstructed years later, the single most important factor in the outcome.

10. How to prevent the classification: a practical checklist

The good news is that the classification is largely within your control. An unbusinesslike loan is, in the end, a loan that was not documented and administered the way an independent lender would have insisted on. The following points, applied at the moment of lending rather than afterwards, make all the difference:

Put the loan in a written agreement at inception, and record the facts and the purpose of the loan. Agree an arm’s length interest rate and actually pay it, rather than simply adding it to the principal. Set a realistic repayment schedule and make the repayments. Provide adequate security wherever possible, and document why the borrower is creditworthy, ideally with a business plan or forecast. If the borrower’s position deteriorates, act on it: call the security or take enforcement steps that the agreement allows. Consider splitting a large facility into separate loans so that each is assessed on its own. Where you can, keep evidence that a third party, such as a bank, would have been willing to lend on similar terms. And review the position annually, recording any change in creditworthiness and the action taken.

The unbusinesslike loan is a technical and highly fact-driven area, and the difference between a deductible and a non-deductible loss often comes down to the file that was, or was not, built at the start. If you are about to lend to your own company or group, or if a loan already on your books is at risk of being written down, it is well worth reviewing the position before you act. We work closely with you to make sure the tax and the documentation are fully aligned.