Although the decision is very factual, the Supreme Court confirmed an existing policy that: (1) third-party income for the use of platforms (i.e., “tariff income”) is not subject to the Dutch state profit share; and (2) the attributable costs—that need to be eliminated from the state profit share result—are equal to one-third of the tariff income.
In the case decided by the Supreme Court:
- BV held license interests in various blocks, together with other license holders.
- The license holders concluded a unitization agreement for the production activities in these blocks.
- BV held a 26% license interest in one of the blocks and a 36.8% interest in the co-owned platforms for the treatment of gas and a compression station based on the unitization agreement.
- Accordingly, BV was charged expenses for the use of the platforms based on its 36.8% interest, but received remuneration for the use of the platforms based on its 26% license interest in one of the blocks.
On its Dutch state profit share return, BV excluded the remuneration from its taxable income, taking the position that the remuneration was for third-party use of the platforms. Also, BV claimed a deduction for the expenses charged in relation to its 26% interest in one of the blocks on the Dutch state profit share return.
The Dutch Tax and Customs Administration agreed to the exclusion of the remuneration, but disputed the deductibility of the expenses.
Supreme Court’s decision
According to the Supreme Court, if a production license holder is also the co-owner of a certain installation (such as a platform), that installation forms part of the business assets of this production license for Dutch state profit share purposes. However, income and costs related to third-party use of platforms must be excluded to determine the profit for state profit share purposes because such income and costs cannot be considered to relate to the production license business.
The Supreme Court also determined that the joint owners of an installation that forms part of the business assets of a production license cannot charge themselves a fee for the use of such an installation in their capacity as owners.
Finally, the Supreme Court concluded that with respect to a joint exploitation, charging expenses for the use of a platform can have real economic relevance if expenses charged for the use of a platform do not equal the share in the remuneration received for the use of that platform. However, this applies only when the amounts charged to the user exceed this user’s share in the remuneration received for the use of the platform. In the present case, the expenses charged to BV did not exceed its share in the remuneration, and thus, the deduction of the expenses charged to BV for use of the platforms was denied.
Read an April 2014 report prepared by the KPMG member firm in the Netherlands: Dutch State Profit Share – Recent Supreme Court decision on tariff income