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PRINT THIS PAGE The Netherlands: demergers21/03/2006. Source: Freshfields Bruckhaus Deringer .
Interest has increased in demergers and spin-offs/ split-offs in the Netherlands. This is particularly the case in transactions where part of the business of a listed company is separated and transferred to its shareholders. Possible structures include a dividend payment in kind or a legal demerger (as in Univar's legal split-off from Vopak). In this briefing, Freshfields Bruckhaus Deringer address certain key issues concerning demergers. A demerger through a dividend payment or payment from the company's reserves is possible under Netherlands civil law, as long as the company has sufficient freely distributable reserves for such a payment and the company's articles of association allow for it: this follows the normal rules on such payments. Netherlands law also specifically provides for a legal split-off.
The biggest obstacle is often tax treatment and this is why we have not seen many of these transactions in the Netherlands until now. In practice, the relevant tax issue is the Netherlands dividend withholding tax (DWT), as well as - until recently - the surtax (a 'penalty' corporate income tax levied on excessive dividends amounting to 20 per cent of the excess). However the surtax was prematurely abolished as of 1 January 2005.
DWT is imposed at a rate of 25 per cent, although under tax treaties this rate is often reduced to 15 per cent for foreign shareholders residing in treaty countries. Although DWT is payable by the shareholders, it is levied from the distributing company itself which will, therefore, withhold it from the (dividend) payment. If the company is not able to withhold DWT on the dividend (as is generally the case for a repurchase of shares on the stock exchange, a dividend in kind or a non-facilitated split-off), the tax will need to be grossed up to 33.3 per cent.
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Freshfields Bruckhaus Deringer is a leading law firm for European private equity and venture capital. Our international private equity group provides our clients with a combination of the local insight of lawyers in our network and money-centre know-how, delivered by fully integrated international teams. We specialise in and are well known for innovative and challenging transactions. For more information about the firm please visit http://www.freshfields.com/sector/privateequity
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