On 21 March 2016 the Permanent Parliamentary Committee of Finance (Vaste Commissie Financiën) and the Minister and State Secretary for Finance discussed an initiative policy document from two members of parliament containing a proposal for measures aimed at the protection of Dutch companies against – in their words –  "harmful" private equity firms that invest in target companies for the sole purpose of extracting as much money as possible therefrom.

On 24 August 2015, two members of the Dutch Parliament presented an initiative policy document (the "Document") containing a proposal for measures aimed at the protection of Dutch companies against – in their words – "harmful" private equity firms that invest in target companies for the sole purpose of extracting as much money as possible therefrom. The proposed measures consist of changes to tax treatment of acquisition debt (described in article 15ad of the Dutch Corporate income tax act 1969 and also known as the "Acquisition Holding Rule") as well as changes to existing corporate legislation, see our English newsletter of 28 September 2015 for more background on the Document.

On 21 December 2015, the Dutch Minister of Finance responded  to the Document with a letter to the government (the "Response"). In his Response the Minister inter alia emphasizes the importance of private equity firms for Dutch businesses and discusses the proposed measures mentioned in the Document.

With respect to the proposed changes to the tax treatment of acquisition debt (mentioned in the Document) the Minister indicated in his Response that the Acquisition Holding Rule should indeed be further clarified on the following issues:

  1. Seven year period - the government is willing to further clarify the seven year period which apply to "sound financing". According to the Acquisition Holding Rule, a sound financing exits if the acquisition debt in the year of the acquisition does not exceed 60% of the purchase price and decreases by 5% per year to 25% in the following seven years. A further clarification on this point should prevent that the acquired company is acquired by a new holding company within the same group as a consequence of which the seven year period re-commences.
  2. Debt pushdown - the government is willing to extend the application of the Acquisition Holding Rule to cases in which an acquisition debt is transferred to the level of the acquired company by means of a so-called "debt pushdown".
  3. Transitional law - the Dutch tax authorities have noticed that existing debts, which under transitional law are grandfathered, may be refinanced as a consequence of which the Acquisition Holding Rule does not apply. The government is therefore also willing to further clarify the scope of the transitional law.

The Minister has also indicated in the Response that he expects to make the abovementioned clarifications (at the earliest) as part of the 2017 Budget, which will be announced on Budget Day in September 2016.

On 21 March 2016 the Permanent Parliamentary Committee of Finance (Vaste Commissie Financiën) discussed the Document and the Response in a meeting with the Minister and State Secretary for Finance. With respect to the fiscal measures, of which the Acquisition Holding Rules is part of, the Minister and State Secretary confirmed during this meeting that:

  • The Response clearly states that the government is willing to close existing loopholes and is not investigating the issues for discussions purposes only.
  • The government has still the intention to start an internet consultation with respect to the fiscal measures during this spring.
  • Although in the future there could be an interaction between (i) the OECD initiatives against Base Erosion and Profit Shifting (BEPS) in which a generic interest deduction limitation on the basis of a percentage of the EBITDA (with a so-called "group-escape") has been proposed and (ii) the Dutch domestic interest limitation provisions, the abovementioned loopholes will be closed in whatever way.

Based on the above confirmations of the Minister, the Dutch government has still a strong intention to close the abovementioned perceived loopholes. Although the internet consultation could change this intention we recommend in the meantime to take into consideration the expected changes when structuring leveraged acquisition structures in the Netherlands.