Netherlands: Introduction Of A Favourable Group Finance Regime

Last Updated: 18 November 1996
INTRODUCTION

On April 23, proposed legislation was sent to the Dutch Parliament which includes measures of great importance for the Dutch business community. These measures, previously announced on January 29, 1996, include, amongst other items, a finance risk reserve for international groups.

Following the approval by Parliament, the bill became effective as from 1 January 1997.

This note provides for a general description of this new regime.

RISK-RESERVE FOR INTERNATIONALLY OPERATING COMPANIES

A Dutch resident entity or branch which is part of an international group may, upon request, form a risk-reserve for specific risks associated with its international operations. The risk-reserve is meant for risks relating to finance activities and the holding of foreign participations or branches. To qualify for the facility, it is not necessary for the finance activity to be the sole activity of the Dutch entity, nor is it necessary to incorporate an entity for that purpose. The finance activities can only be conducted from the Netherlands. Whether the group has other finance entities outside the Netherlands is not relevant.

To qualify for the facility, an entity must meet each of the following two tests: an activities-test and a countries-test.

The Activities-Test
The entity needs to perform finance activities for the benefit of the group. The term "finance activities" is broadly interpreted and includes, for example, the financing of related entities (irrespective of whether or not they qualify for the participation exemption), including finance and operational leases and the exploitation of acquired or self-developed intellectual property (royalties etc.).

The Countries-Test
To qualify for the facility, the entity has to perform the finance activities on behalf of group companies which are established in at least four countries or on two continents. In addition, under the four-countries-test it is required that related entities in each of the countries contribute at least 5% of the taxable gross income of the Dutch entity. Under the two-continents-test, related entities in each of the continents are required to contribute at least 10% of the taxable gross income of the Dutch entity. Under this countries-test a limited income-pooling of countries or continents will be allowed.

In addition, the entity may also (but is not required to) finance Dutch related entities, although within certain ratios. For example, not more than 10% of the funds used for the finance activities may be deployed in the Netherlands. Finance income realised from any excess of funds deployed in the Netherlands will not qualify for the risk reserve.

The Addition To The Reserve
Annually, maximally 80% of the taxable profits from the finance activities can be deducted from the taxable profit and added to the special risk reserve. These profits include income/capital gains from active foreign subsidiaries which do not qualify for the participation exemption because they are not subject to income tax in their country of residence, and the income from short term investments which are made in connection with possible future acquisitions (the "acquisition fund"). Income/capital gains from passive foreign subsidiaries which do not qualify for the participation exemption, such as the passive finance companies mentioned in paragraph B2, cannot be added to the reserve and are, therefore, fully taxable.

Deductions smaller than 80% are also possible at the discretion of the taxpayer. The taxable profits (as referred to above) from the finance activities do not include profits which are exempt by virtue of the participation exemption or profits which are exempt under double taxation relief rules. Currency profits on loans can be 100% deducted from the taxable profit and added to the reserve.

The maximum annual addition to the reserve should also not exceed 80% of the total taxable income of the Dutch entity (ie: including losses from other activities). The size of the reserve is otherwise unlimited.

The Release Of The Reserve
The reserve can be released in a number of ways:

a. By means of a taxable release

Tax deductible losses related to risks for which the reserve is created (for example: write-downs of loans or liquidation losses), trigger a taxable release (at regular rates) of the reserve to the extent of these losses.

The reserve will also be released fully taxable if the entity fails to meet the tests mentioned above or is liquidated.

b. By means of a tax-free release

In a number of specific circumstances, the facility allows for a tax-free release of the reserve:

  • The entity may release from the reserve 50% of the amount of the capital contributed to a foreign subsidiary or 50% of the price paid for a subsidiary. The amount of the release reduces the tax cost price of the subsidiary (relevant for the calculation of a liquidation loss).
  • The (full) amount of a capital contribution to a related company which relates to the assumption of a liability by the group for a risk which has arisen in that company and cannot be borne by that company itself.
  • The (full) acquisition cost of a subsidiary which, in the opinion of the Minister of Finance, involves extraordinary risks, either on account of its activities or because of the place where these activities are performed.

c. By means of a voluntary release

Finally, the facility provides for a voluntary release whereby the full reserve is released on a straight line basis over a five year period at a special tax rate of 10%. During the release period the Dutch financing entity should still meet the tests mentioned above and all other conditions (if any) imposed by the tax authorities when starting the reserve.

Further information can be obtained from Mr P.J. te Boekhorst
KPMG Meijburg & Co, Amsterdam (Netherlands); fax 31 (20) 656 1247.

Keywords: Netherlands / Europe / European Union / KPMG Meijburg & Co / Dividends / Interest / Royalties / Participations / Corporate finance / Finance risk reserve

Note: The content of this contribution is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For more information on Taxation in The Netherlands enter a text search 'KPMG Meijburg & Co' and 'Business Monitor'.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions