For the purposes of the loss setoff limitation, social housing letting qualifies as making investments

Case

The interested party is a public limited company whose shares were held by a foundation qualifying as a housing association. The interested party is letting immovable property for the purpose of promoting social housing and strengthening the residential function. Until 7 July 2016, the interested party and its subsidiaries formed part of a fiscal unity for corporate income tax purposes, with the foundation being the parent company.

On 8 July 2016, the foundation sold 55.02% of the shares in the interested party to a municipality and two pension funds, resulting in the deconsolidation of the interested party and its subsidiaries from the existing fiscal unity. Immediately afterwards, these companies formed a new fiscal unity, with the interested party now being the parent company.

The Tax Inspector subsequently determined which portion of the losses of the old fiscal unity should be allocated to the subsidiaries. Within the new fiscal unity these allocated losses qualified as preconsolidation losses of the subsidiaries. The interested party wished to set off these preconsolidation losses against the profit of the new fiscal unity.

Invoking Article 20a of the Corporate Income Tax Act 1969 (‘CITA 1969’), the Tax Inspector refused this on the grounds that the assets of the subsidiaries were said to consist largely of investments. The dispute centred on whether the activities of the subsidiaries – the letting of immovable property to third parties – should be regarded as investments within the meaning of Article 20a(8) of the CITA 1969 (investment fiction).

Court ruling

The Court of North Holland ruled that the ultimate interest in the interested party had changed significantly, as more than 30% of the shares had been transferred. Hence, one of the conditions for the application of the loss set-off limitation under Article 20a of the CITA 1969 had basically been met.

Next, the Court considered the question of whether the assets of the subsidiaries consist largely of investments and found that the subsidiaries make available immovable property to third parties. This satisfied the investment fiction under Article 20a(8) of the CITA 1969. The Court argued that the letting of social housing does not affect this.

As the investment fiction had been satisfied, it was not possible for the interested party to set off the preconsolidation losses allocated to the subsidiaries within the new fiscal unity. The interested party lodged an appeal in cassation with the Supreme Court, against this judgment.

Supreme Court ruling

However, the Supreme Court upheld the Court’s ruling. For the purposes of Article 20a(8) of the CITA 1969, the concept of ‘investment’ has an independent meaning. This renders irrelevant that the letting is classified as a business activity for the purposes of other tax provisions.

The Supreme Court argued that making available immovable property to third parties for the long-term falls, in principle, under the investment fiction of Article 20a(8) of the CITA 1969. This may only be different if making available property is part of short-term services, such as in hotels, cafés, restaurants or similar businesses. However, the letting of property by the interested party’s subsidiaries did not have that character.

The Supreme Court argued that neither the social housing letting nor housing associations having been fully liable for corporate income tax since 2008, would lead to a different outcome. The corporate income tax liability in particular is intended to create a more level playing field between housing associations and commercial property parties.

As the investment fiction has been satisfied, it is not possible for the interested party to set off the preconsolidation losses allocated to the subsidiaries within the new fiscal unity. The Supreme Court declared the appeal in cassation unfounded.

Source:

• Supreme Court, 29 May 2026, 23/01379, ECLI:NL:HR:2026:811