Private equity investments in non-dutch targets through a Dutch Coop Jochem van der Wal / Michiel Schul

Transcription

1 Private equity investments in non-dutch targets through a Dutch Coop Jochem van der Wal / Michiel Schul Union International des Avocats (UIA) - Tax Committee Loews Miami Beach Hotel November 3,

2 Table of Content: Use of Coops as holding vehicle for PE investments general (slide 3): Slide 4: Introduction Slide 5: What makes Coops so Attractive? Slide 6: Participation Exemption Slide 7: No Dividend Withholding Tax Slide 8: No Non-Resident Taxation under Business Exception Examples use of Dutch Coops by PE investors (slide 9): Slide 10: Examples use of Dutch Coops - overview Slides 11-13: Case studies Tax Bill 2012 Legislative proposals (slide 14): Slide 15: Tax Bill 2012 the Legislative Proposals Slide 16: Tax Bill 2012 Impact on structures with Coops 2

3 Use of Coops as holding vehicle for PE investments - general 3

4 Introduction Determining a prime location for a holding company Investor Tax leakage on profit repatriation Non-resident taxation Holding Taxation of investment proceeds Tax regime of financing Investment Profit distribution Importance of non-tax features! Substance, corporate legislation 4

5 What makes Coops so attractive? 1. Coop is subject to Dutch tax and, accordingly, a Dutch resident for tax treaties, EU Directives and EU Freedoms. 2. In private equity structures usually no actual Dutch tax is due, because (subject to conditions): 1. Participation exemption re dividends and gains from portfolio company (see slide 6); 2. No withholding on distributions and interest payments by Coop (see slide 7); 3. No non-resident taxation (see slide 8). PE Fund Coop As Seller Distribution of cash Price Sale Buyer 3. Use of Coop may result in capital gains tax exemption and no or reduced withholding in country of investment. Portfolio Company 5

6 Participation Exemption: exemption 1. If participation exemption applies, capital gains, dividends and earn-out payments with respect to portfolio companies are fully exempt for Coop. 2. Participation exemption applies for 5% interest if one or more of following tests are satisfied: a) Purpose Test b) Taxation Test c) Assets Test Usually, all three tests are satisfied for private equity investments, but only one test required for participation exemption. 6

7 No Withholding withholding Tax: tax 1. The Netherlands levies no WHT on interest and royalties. 2. Dutch WHT on dividends is 15%, but no WHT on distributions by Coop. Why? Coops traditionally for domestic use only. 3. Dutch Tax Authorities started to issue Advance Tax Rulings in 2005 resulting in broad use and 5062 registered Coops by Concerns about effects of ruling policy on Dutch international reputation led to certain restrictions per early 2008: a) Unanimous consent required from all members for transfers and admissions; and b) Rulings re Coops only issued, if all elements of structure acceptable. 7

8 No non-resident taxation under Business Exception 1. A non-dutch holder of 5% in a DutchCo (incl. Coops, BVs and NVs) is subject to Dutch tax with respect to capital gains, dividends and interests, but: Business Exception: No tax if non-dutch holder is considered to carry on a business and the interest in Coop belongs to such business. a) Domestic interpretation (i.e. irrelevant if non-dutch holder is also considered to carry on a business under its local tax laws). b) PE Funds are considered to carry on business, provided that: i. PE Fund seeks influence in portfolio companies (for instance, through board representation, strategic veto rights, etc.); and ii. PE Fund is actively managed in return for market carry and fees. 8

9 Examples use of Dutch Coops by PE investors 9

10 Examples use of Dutch Coop - overview Holding Vehicle Non-Dutch Target Investment Platform Fund Vehicle PE Fund PE Fund Coop As Fund Coop Non-Dutch Target Coop Portfolio Companies Portfolio Companies Participation Exemption No WHT Business Exception Ruling available Participation Exemption No WHT Business Exception Ruling available Participation Exemption No WHT Business Exception for each Investor? Since 2008: No rulings, but use of Curacao holdings. 10

11 Case Study I: Non-Dutch Acquisition A PE Fund that satisfies the Business Exception (see slide 8) incorporates a Dutch Coop to hold a non-dutch company. PE Fund PE Fund Coop Non-Dutch Target Non-Dutch Target No Dutch tax due Ruling should be available 11

12 Case Study II: Coop as Investment Platform 1. A PE Fund that satisfies the Business Exception (see slide [ ]) incorporates a Dutch Coop as an investment platform for a number of future investments. The Coop has sufficient resources to make and monitor investments. 2. The Coop acquires a number of portfolio companies, including a Dutch company with existing earnings. 3. The Dutch portfolio company distributes a dividend. Dutch Company PE Fund Coop Non-Dutch Company Non-Dutch Company No Dutch tax should be due Yet uncertain if ruling will be available. 12

13 Case Study III: Coop as Fund Vehicle 1. A Coop is established as fund vehicle. Investors pool their investments in the Coop and the Coop makes the investments in portfolio companies. The Coop has sufficient resources to make and monitor investments. Coop as Fund 2. The Dutch Coop acquires a number of portfolio companies, including a Dutch company with existing earnings. Dutch Company Non-Dutch Company Non-Dutch Company 3. The Dutch portfolio company distributes a dividend. No Dutch tax should be due Yet uncertain if ruling will be available. 13

14 Tax Bill 2012 the Legislative Proposals 14

15 Tax Bill 2012 the Legislative Proposals 1. Limitation of non-resident taxation for non-dutch holder of 5% in a DutchCo NL had to amend its legislation on this point, because it was facing pressure from the European Commission that the current legislation may be in breach of EU law; Conditions relaxed by providing that non-dutch holder is not subject to Dutch CIT in case: i. Business Exception is met (existing rule see slide 8); or ii. the substantial interest is not held with the main purpose (or one of the main purposes) to avoid Dutch individual income tax and/or Dutch dividend tax of another person (new rule). 2. Amendments in relation to Coops General rule: distributions by Dutch Coops are not subject to WHT Exception: distributions by Dutch Coops may be subject to WHT in certain artificial structures that the Dutch Ministry of Finance considers abusive. This exception to the main rule is targeting mere 'passive' investors (e.g. individuals) that structure their investments through Dutch Coops in order to avoid Dutch or foreign (withholding) tax. Exception should not be applicable with respect to PE firms that structure their investments in non-dutch targets through Dutch Coops. 15

16 Tax Bill 2012 Impact on structures with cooperatives 1. No Dutch dividend tax or substantial interest taxation on distributions by Coop to PE Fund if Business Exception is met (see slide 8). 2. However, even if Business Exception is met, dividend tax will be due if Coop is artificially interposed between PE Fund and Dutch target company and such Dutch target company has existing (hidden) earnings. No WHT should be due, however, if Coop has a business purpose, for instance as fund or joint venture vehicle, and the capacity to perform its functions. No changes to current practice intended. 16

17 Contact details Jochem van der Wal Tax partner Loyens & Loeff N.V. Amsterdam office T E jochem.van.der.wal@loyensloeff.com Michiel Schul Senior associate Loyens & Loeff (USA) B.V. New York office T E michiel.schul@loyensloeff.com 17