Further adjustments considered to Dutch (intermediate) holding acquisition structures
Recently, the Dutch government provided a reply to the Memorandum “Private equity : the end of excesses” as prepared by 2 Dutch members of parliament of the Dutch labour party. The Memorandum is predominantly focussing on Dutch acquisition entities that are financed with debt in order to acquire a Dutch target company. In most situations multinational companies (including private equity), subsequently create a fiscal unity between the Dutch acquisition entity and the Dutch target in order to offset the funding expenses (interest etc) with the profits of the Dutch target company.
The Dutch government starts with emphasizing that private equity seems to have a positive effect on the Dutch economy referring to previous economic research. Nevertheless, the government recognizes that certain adjustments to the existing Dutch interest deduction legislation may be required before the introduction and adoption of new EU interest deduction limitation rules. It is anticipated that the EU will publish these rules in a directive in the course of 2016.
Review following issues
The Dutch government will most likely review whether they need to repair the following issues:
- Review existing seven years period
Generally the acquisition debt may not exceed 60% of the acquisition price of the Dutch target. This percentage is reduced annually and reaches a 25% cap after 7 years. Tax payers can quite simply renew this 7 years period, resulting in a higher interest deduction.
- Debt push down
The interest deduction limitation do not limit a debt push down of acquisition debt to the target company.
- Transition rules
The existing interest deduction limitation do not apply for loans relating to acquisition prior to November 2011. This may result in continuous roll over or renewal of these loans.
The Dutch government will start an internet consultation in Spring this year in order to receive input on the proposed changes. Possible changes will not be introduced before January 1, 2017. As soon as the draft legislation is published it will be possible to prepare an impact analysis and take proper actions (if necessary).
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