NETHERLANDS Law and Practice Contributed by: Folko de Vries, Ilse van Gasteren, Robert Smits and Stern Flik, Clifford Chance
commercial terms. As such, provided that a pri - vate credit provider is not affiliated to a borrower and instruments qualify as debt, such payments by a borrower should not be subject to Dutch withholding tax. A person should be considered an affiliated enti - ty of a borrower if (i) that person has a qualifying interest in the borrower, (ii) the borrower has a qualifying interest in that person or (iii) a third person has qualifying interest in each of them. Generally, the term “qualifying interest” means a directly or indirectly held interest, individually or jointly as part of a qualifying unity ( kwalificerende eenheid – effectively a group collaborating with a withholding tax avoidance motive), that gives the holder of such interest definite influence over the decisions of the entity in which the interest is held and allows determination of its activities. In affiliated situations, the withholding tax is only due if (i) the person who is considered the recipient of the payments is situated in or acting from certain jurisdictions included on the list of low-taxing and EU-blacklisted jurisdictions pub - lished annually by the Dutch government or (ii) there is an abusive or hybrid mismatch situation. The withholding tax rate is currently 25.8%. In typical lending transactions there rarely is affiliation between a credit provider and a bor - rower. Therefore, it should typically not be nec - essary for private credit providers to specifically manage or mitigate Dutch withholding tax risk. Nevertheless, generally speaking, to mitigate any residual risk of abuse or hybrid situations, credit is often provided through a corporate entity with sufficient economic substance. This can become more relevant where it concerns debt with equity features or where an equity interest is held alongside the debt (either by the private credit provider or an affiliate), which is
something more often seen with private credit providers than with commercial banks. In these situations, careful consideration must be given on a case-by-case basis, as such equity features or interests potentially impact the withholding tax position (either directly or upon for exam - ple future conversion). This is also true from the perspective of the borrower where it concerns deductibility of payments for Dutch corporate tax purposes. 4.2 Other Taxes, Duties, Charges or Tax Considerations Stamp Taxes The Netherlands typically does not levy any stamp, registration or transfer duties or taxes in relation to execution or enforcement of finance documents or related security documents. Dutch stamp duties are typically only due on insurance premiums (insurance premium tax). Dutch transfer taxes are typically only due by an acquirer of (certain rights in rem to) Dutch real estate assets or shares in certain companies owning Dutch real estate. Effectively, this means that transfer tax is not triggered by the execu - tion of a right of mortgage or share pledge, but is possibly triggered on the enforcement of the security rights. In such scenarios, transfer tax should not become due by the security holder but rather by the acquirer of the secured assets, unless the security holder would itself acquire the real estate or shares. The possibility of the private credit provider taking the secured assets itself is, for real estate debt funds, something to take into account upon inception as it creates a variety of tax issues in practice, not only in the Netherlands but also in other European jurisdic - tions. VAT In principle, financial services are exempt from VAT in the Netherlands. Therefore, the provision
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