Realities of M&A transactions in the Netherlands

First of all, it is important to clarify what the M&A deals are. So, M&A deals (“Mergers & Acquisitions”, mergers and acquisitions) constitute a set of activities aimed at merging two or more companies into one corporation with a single governing body, which is accompanied by the transfer of control of business management from one company to another other. M&A deals are a special kind of investment, based on the principles of voluntary consent of all participants of the process and mutual benefit. Such a phenomenon as mergers and acquisitions occurred due to the application of the world experience of the corporate management in the field of company restructuring. The M&A market in the Netherlands is currently very active. This is due to a combination of indicators such as access to cheap loans, positive economic data and constant competition for quality assets. After the parliamentary elections in the Netherlands in early 2017, several parties are attempting to form a coalition government. Once it has been formed, new legislative initiatives are expected. In the third quarter of 2017, the Dutch economy grew by approximately 3.5% and, according to official sources, it will continue to grow. The first half of 2017 in the Netherlands was characterized by an increase in private equity transactions in consumer goods, energy and information technology. As for the legislation governing M&A deals in the Netherlands, it is worth noting the following. Private M&A transactions are not governed by specific rules (except for legal mergers for which strict specific rules apply). Private M&A transactions are governed by general Dutch law, in particular, general contract and corporate law and certain provisions of property law. Public M&A transactions are governed by the Financial Supervision Act and subordinate regulations. In addition to generally applicable regulations under law, M&A transactions are regulated by:

• the Competition Act;
• the Works Council Act and the Merger Code of the Social Economic Council;
• sector-specific regulations (for example, transactions in the defence, energy, financial and healthcare sectors can be subject to specific regulations).

So, let’s consider the ways of acquiring the company. A non-listed company can be acquired through:

• a share transaction, whereby the shares in the company are sold and transferred to the buyer;
• an asset transaction, whereby assets and liabilities are sold and individually transferred to the buyer; and
• a legal merger, whereby the company merges into the acquiring company (or a new company) and the old company ceases to exist.

A listed company can be acquired, for example, through a public takeover bid or through above mentioned asset transaction. As a rule, the deciding factors for choosing a particular transaction structure are:

• tax;
• the nature of the assets and liabilities of the company;
• the company’s shareholder structure.

In accordance with the laws of the Netherlands, the acquiring party has the right (but not the obligation) to obtain information about the object of its purchase. Among other things, this will greatly simplify the procedure for making claims during the transaction. Generally, the interested information is available from public registers, or by submitting an official request to the relevant company listing all the questions that have arisen.

What are the features of such transactions?

The initial stage in conducting M&A transactions is the preliminary agreements on confidentiality (non-disclosure of information), as well as various agreements of intent. The main document when making such transactions is an acquisition agreement. In addition to it, the transfer of legal ownership of shares requires a notarial deed and in case of an asset transaction, the transfer of legal ownership of each individual asset should be assessed and may require additional documentation. Unlike an auction process where the seller typically provides a draft acquisition agreement, the first draft acquisition agreement is generally prepared by the buyer. The acquisition agreement commonly includes the following substantive provisions:

• the parties;
• the object to the transaction (i.e., a description of the target company or assets);
• the purchase price and effective date of the transaction;
• any conditions precedent;
• the pre-closing covenants;
• the closing mechanics;
• warranties and limitations of liability;
• specific indemnities;
• post-closing covenants;
• miscellaneous provisions (eg, confidentiality, assignment, cost allocation, governing law and dispute resolution).

And, finally, let’s consider the features of taxation of M&A transactions.

Corporate Income Tax (CIT):

• The Dutch CIT rates are 20% on the first €200,000 (to be increased to €350,000 in the next few years) and 25% on profits exceeding this threshold.
• A Dutch seller is normally exempt on the sale of the shares in the target company due to the application of the rules for the complete exemption of dividends from taxes, unless the target company is a low-taxed passive investment company.
• In case of an asset transaction, the difference between the tax book value and the purchase price is included in the taxable income of the seller.
• In case of a legal merger, if a target ceases to exist on a merger, it is deemed to have sold its assets. The difference between the tax book value and the fair value of the assets is included in the taxable income of the target.

Value Added Tax (VAT):

• The generally applicable VAT rate is 21%.
• The sale of shares is not taxed with VAT.
• The sale of assets is taxed with VAT.
• VAT on deal costs is generally recoverable, except in case of a share deal, where restrictions apply.

Real estate transfer tax and other registration duties:

• Acquisition of real estate is subject to 6% real estate transfer tax.
• On acquisition of the shares in a Dutch company, real estate transfer tax is payable by the buyer only if the target’s assets comprise at least 50% real estate
• No stamp duties or other transfer taxes apply.

Summarizing, it can be noted that, as an example of the considered European jurisdiction, the institution of M&A transactions is legally settled up to procedural issues, taxation, etc. I wish the Ukrainian legislator will take into account the trends in the development of the European jurisdictions in this field and strive to meet them.