Horlings is a world-wide network of independent accountants and consultants firms 6 February 2009 The Dutch co-operative Nexia European Tax Group Meeting Dorine Fraai Senior Tax Manager Horlings Tax Advisors Amsterdam The Netherlands

2 25 October Content 1.Introduction 2.Civil law aspects 3.Taxation of co-operative 4.Taxation of members of co-operative 5.Dividend withholding tax and international aspects 6.Structures

3 25 October Introduction Use of a co-operative Traditionally the Dutch co-operative was used by farmers; Originally for civil law purposes, nowadays use is tax driven The Dutch co-operative is used more often in international holding structures; Main advantage: no Dutch dividend withholding tax on dividends distributed by co-operatives, while use of treaties is possible, sometimes in combination with a BV; Dutch tax authorities are willing to grant an Advance Transaction Ruling for the use of the co-operation under certain circumstances; Other advantage of co-operatives is the very flexible company law regime that applies;

4 25 October Civil law (1) Features of a co-operative A co-operative is a legal entity to which most of the civil law stipulations for associations are applicable; A co-operative has legal personality; A co-operative can own assets, incur liabilities and sue/being sued in its own name; A co-operative does not have shareholders, but has members instead; A co-operative can distribute profits (and not dividends) to its members;

5 25 October Civil law (2) Incorporation of a co-operative A co-operative is incorporated by at least two members; A co-operative has to be incorporated before a Dutch notary; A declaration of non-objection by the Dutch Ministry of Finance is not necessary; The goal must be to provide for material needs of its members; For this purpose a co-operative can enter into agreements with its members; A co-operative must be registered with the Chamber of Commerce;

6 25 October Civil law (3) Transfer of membership in a co-operative Membership is in principle not transferable, however the articles of associations can determine that new members can be admitted; For tax purposes it must be mentioned in the articles of association that new members can only be admitted provided that all other members approve the admission; Capital and liability No minimum capital; Exclusion of liability of debts of co-operative possible for members No legal requirement to distribute profits; Obligation to publish annual accounts with Chamber of Commerce;

7 25 October Civil law (4) Board of co-operative Main governing bodies consist of Managing Board and General Meeting of Members; Possibility to appoint a Supervisory Board; Managing board and ultimately the general Meeting of Members decides on admission of members to the co-operative;

8 25 October Tax law (1) Corporate income tax A co-operative is subject to Dutch corporate income tax; A co-operative can invoke the participation exemption on a qualifying participation; A co-operative can become a part of a fiscal unity; Ad 1 Subject to corporate income tax A co-operative is subject to corporate income tax like a BV or an NV. A complicated regime exists for co-operatives having individuals as members, allowing for the deduction of profit distributions to members.

9 25 October Tax law (2) Corporate income tax: participation exemption A qualifying participation is present provided that: -A stake of at least 5% (5% of nominal share capital, or in some cases 5% of voting rights) is held in a company having a capital divided into shares; and -The subsidiary cannot be regarded as a low taxed investment subsidiary, or -The subsidiary is a real estate subsidiary;

10 25 October Tax law (3) Corporate income tax: participation exemption Low taxed investment participation A subsidiary qualifies as a low taxed investment participation if: more than 50% of the value of its assets comprises “non-business-related assets” (asset test), and the subsidiary is not subject to an effective rate of at least 10% on a taxable profit calculated established in accordance with Dutch standards (subject-to-tax test).

11 25 October Tax law (4) Corporate income tax: fiscal unity A co-operative can form a fiscal unity with a BV (or another co-operative), in which the co- operative is the parent company, or can be the subsidiary of a BV and form a fiscal unity as such. In international structures a co-operative is often set up holding the shares of a BV, forming a fiscal unity. Main features of a fiscal unity: -The parent company and the subsidiary can file one single tax return; -Assets and liabilities can be transferred free from corporate income tax within the fiscal unity; -Losses of one member of a fiscal unity and gains of other members of a fiscal unity can be offset within the same year;

12 25 October Tax law (5) Corporate income tax: fiscal unity The main conditions for the formation of a fiscal unity are: Each subsidiary must be at least 95% owned (legal and beneficial ownership of the shares), although the holding may be indirect through another Dutch company, provided the intermediary company also forms a part of the fiscal unity; The accounting period for all companies forming part of the fiscal unity must coincide; The companies involved must be subject to the same tax regime; The companies must be resident in the Netherlands for corporate income tax purposes; Both the parent company and the subsidiaries should have a certain legal form, such as the NV, BV or co-operative, or a comparable foreign legal form.

13 25 October Tax law (6) Dividend withholding tax Distributions of profit by a co-operative to its members are exempt from Dutch dividend withholding tax, since the co-operative is not mentioned in the Dutch Dividend Withholding Tax Act. In order to ensure that the Dutch dividend withholding tax applies, an Advance Tax Ruling (ATR) can be negotiated with the Dutch tax authorities.

14 25 October Taxation members of co-operative Co-operative can have private individuals as members and entities as members We will only discuss taxation for (foreign) corporate members Dutch corporate members Corporate members of a co-operative can invoke the participation exemption on profit distributions derived from their membership. No minimum requirement of the holding of 5% in a co-operative.

15 25 October Taxation foreign members of co-operative Foreign Corporate members of co-operative can become subject to Dutch corporate income on the basis of the following two stipulations of the Dutch Corporate Income Tax Act: The membership in the co-operative can be regarded as a share in the profit of an enterprise that has its effective management in the Netherlands, provided that that share in the profit can not be regarded as derived from holding securities; or The membership in the co-operative constitutes a substantial interest (entitles the member to 5% or more of the annual profit of the co-operative) and the membership cannot be allocated to an (active) trade or business of the member.

16 25 October Co-operative: Dutch Advance Tax Ruling The Dutch tax authorities are willing to grant an ATR confirming that:  No Dutch corporate income tax is due on membership in a co-operative;  Distributions of profit by co-operative are not subject to Dutch dividend withholding tax. Provided that: The co-operative is used an active structure. No Dutch dividend withholding tax claim is lost by the use of a co-operative; No individuals as members of the co-operative; All other relevant tax aspects are covered in ATR. In some cases where the co-operative or its Dutch subsidiary carry our finance activities, the ATR will be issued under the condition that an Advance Pricing Agreement is negotiated for finance activities; Co-operative must be a closed end co-operative; Co-operative may not be an entity listed on the Amsterdam stock exchange.

17 25 October International tax aspects of co-operative Co-operative is entitled to EU Directives, except for Interest and Royalty Directive, As a result, a co-operative can invoke the Parent-Subsidiary Directive Co-operative is entitled to tax treaties

18 25 October Conclusion and questions The advantages of using a co-operative in international structures can be summarized as follows: No dividend withholding tax upon distribution of profits by co-operative; No capital tax (abolished); Unlimited access EU Directives and Dutch tax treaty network; Only one jurisdiction, therefore low annual maintenance cost; Simple structure; Flexible civil law stipulations and quick incorporation; Easy exit, because capital gain not taxable; Tax treatment can be confirmed through an ATR.

19 25 October Structures using a co-operative Sub 1Sub 2 Fund lp Sub 4 BV Cooperative Sub 3 investors Active subsidiaries Link function Cayman Islands Netherlands Foreign countries distrib.exempt Tax free

20 25 October Structures using a co-operative Sub 1Sub 2 NA Holding Sub 4 BV Cooperative Sub 3 investors Active subsidiaries Link function Netherlands Antilles Foreign countries NL

21 25 October Structures using a co-operative Sub 1Sub 2 LP Cayman Sub 4 BV Cooperative Sub 3 investors Active subsidiaries Link function Foreign countries NL Hybrid loan: interest exempt for BV and deductible at level of Sub 1