Dutch (intermediate) holding and finance companies are a common feature in international tax structures. Some of the reasons for creating a Dutch structure include:
- the Netherlands’ extensive tax treaty network, which assists in avoiding double taxation, qualifying for the participation exemption and achieving various other tax benefits; and
- the extensive Bilateral Investment Protection Treaty (BITS) network, which provides access to a neutral arbitration forum providing enforceable judgments and offering protection in the form of compensation in the event of the nationalization of an investment or discriminatory treatment by a state that is a party to a BITS treaty.
Ongoing maintenance and compliance with statutory disclosure requirements are key to maintaining control and limiting exposure for a Dutch N.V. or B.V. company and its management. Incorrect disclosure or the lack of disclosure may result in an economic offense with a maximum monetary fine of EUR 74,500 per breach and joint and several liability for the Dutch N.V. or B.V. company and its individual directors. Depending on the materiality of the breach, this may lead to additional regulatory disclosure for listed companies.
Given the importance of Dutch (intermediate) holding and finance companies in international group structures and the significant funds that may flow through Dutch entities, it is essential that all applicable corporate requirements are observed to limit potential exposure and avoid compromising relevant dividend flows. According to the Dutch government’s most recent estimates from 2010, approximately EUR 10.2 billion passes through Dutch holding and finance structures per annum.
Dutch N.V. and B.V. companies are obliged by law to prepare and file with the Trade Registry annual accounts adopted by shareholders within 13 months of completing a financial year. For example, the statutory deadline for statutory corporate reporting requirements for a company with a December 31, 2011 year end would be January 31, 2013.
What if Accounts are Filed Late?
Failure to adhere to the statutory corporate reporting deadlines will result in the following consequences:
- Notification of material breach to regulators. (SOx has a top-down approach and its scope also extends to non-US subsidiaries.)
- Criminal liability for the company and its directors (this includes de facto directors). The Dutch Internal Revenue Service regards enforcement of corporate reporting requirements as a key focus area.
- Civil liability exposure for the company and its directors. Rebuttable statutory presumption of mismanagement causing personal joint and several liability for the company and its management.
- Potential post-disposal liability for former directors of entities that have left the group. A liquidator in bankruptcy will assess whether the annual accounts have been filed within the 13 month statutory filing term for the three years preceding the bankruptcy. This is a significant issue if annual accounts have not been filed on time as the disposal entails loss of control over the entity involved.
- Potential inability to meet additional statutory disclosure requirements of other authorities, works’ council, etc.
- Restrictions, complications and delays in the event of future corporate restructurings. The rebuttable presumption of mismanagement leading to personal liability may seriously limit the possibility of rescheduling the debt of a group of companies. It may also severely delay a statutory merger process that forms part of the restructuring and corporate recovery efforts.
- Potential restrictions on the ability of directors to invoke Directors’ and Officers’ insurance coverage due to the statutory assumption of mismanagement.
- Adverse effect on reputation in the market and financial communities.
Requirements for All Dutch Companies
Properly prepared annual accounts must be filed with the Trade Registry within the 13-month statutory filing period. In addition, the annual accounts must in principle be signed by all managing directors and supervisory directors. Failure to do so may attract personal civil and criminal liability on the part of the company and its directors alike (including de facto directors that set the strategic policy within the company). Annual accounts generally consist of a balance sheet, a profit and loss account, explanatory notes and an auditor’s statement. Exemptions relating to the composition of the annual accounts may apply for certain companies.
For the accounts to attain a definitive status, they should be accompanied by a copy of the related shareholders’ resolution, reflecting approval of the accounts. Failure to file such documentary evidence may lead to the financial statements attaining provisional status only, thus leading to a breach of the 13-month statutory filing period.
Dutch Holding Companies — Consolidation Obligation
Dutch parent companies are required to file consolidated accounts that include financial information from subsidiaries, as well as group companies that are de facto controlled by the Dutch parent. This obligation also applies to Dutch (intermediate) holding companies, unless the small companies exemption is available. In order to qualify for the exemption, the Dutch (intermediate) holding company must meet two out of the three following conditions during two consecutive accounting reference periods (thresholds effective as of January 1, 2007):
- the net asset value of the Dutch (intermediate) holding company must be less than EUR 4.4m;
- the net turn-over of the Dutch (intermediate) holding company for the relevant financial year must be less than EUR 8.8m; and
- the Dutch (intermediate) holding company must have less than 50 employees in the relevant financial year.
The balance sheet position of subsidiaries must be included in the small companies’ exemption assessment.
The consolidation exemption discussed above may be waived if consolidated accounts of the ultimate parent company, drawn up in accordance with International Accounting Standard 27, are filed within the 13-month statutory filing period, along with the Dutch holding companies’ independent accounts pursuant to Article 2:408 of the Dutch Civil Code. Often, this exemption is invoked but the physical filing of the ultimate parent accounts or a reference to the Dutch Trade Registry where such consolidated ultimate parent company accounts are filed is overlooked, thus leading to a breach.
A Dutch subsidiary is exempted from filing independent accounts if its financial data is consolidated into parent accounts drawn up in accordance with the seventh EU directive (accounts of an EU group holding company). If the exemption is invoked, a joint and several liability undertaking (403-verklaring) should be issued for the Dutch subsidiary by the consolidating EU holding company. In addition, a consent statement (instemmingsverklaring) should be issued annually by the shareholders of the Dutch subsidiary and filed with the Trade Registry to demonstrate transparency. The consent statement must be issued after the relevant financial year has commenced, but prior to the adoption of the consolidated financial statements for that financial year. The consolidated parent company accounts must contain a list of all subsidiaries to which the filing exemption applies. The filing of joint and several liability undertakings and/or consent statements is often overlooked, which leads to a breach.
International group structures must ensure that statutory reporting requirements with respect to Dutch group entities are strictly observed to avoid economic offenses and personal civil liability issues and additional regulatory disclosure requirements in respect of breaches.
The Amsterdam office of Greenberg Traurig has developed a tool to assess corporate reporting compliance on the basis of public disclosure information at the Trade Registry. Upon request, we can as a matter of courtesy conduct a preliminary assessment and, where applicable, discuss the appropriate remedies where issues are identified.