NETHERLANDS Trends and Developments Contributed by: Folko de Vries, Clifford Chance
will increase. Insolvency laws and schemes are therefore likely to be top-of-mind for private credit providers. One relevant ongoing development in this respect is that the insolvency law in the Neth - erlands is undergoing a process whereby the Dutch Bankruptcy Act will be extensively mod - ernised and reorganised. As part of this process, a Dutch scheme was introduced on 1 January 2021. The EU Restructuring Directive (which introduced a debtor-in-possession regime and an effective scheme of arrangement) has been partly implemented by the Dutch scheme. On 7 December 2022, the European Commission published its proposal for a directive seeking to level the playing field across the EU member states in relation to certain aspects of insolvency law. The Proposal for a Directive of the European Parliament and of the Council harmonising cer - tain aspects of insolvency law (2022/0408 (COD)) seeks to converge insolvency rules, with the aim of making them more efficient and effective in terms of creditor recoveries to facilitate cross- border investments. In order to achieve this, it seeks to create common standards across all EU member states. As such, this proposal to har - monise certain aspects of insolvency law forms part of the wider EU Capital Markets Union initia - tive announced in 2020, which is a key project designed to further the financial and economic integration across the EU. Tax Whether in the context of a restructuring trans - action or a scheme or (in some parts of the market) from the outset of a transaction, we increasingly see private credit providers hold - ing a co-investment in the equity or providing holdco PIK financing with conversion rights. This can have tax implications. As a general rule, the Netherlands does not impose withholding tax on
payments of principal, interest and other (debt financing-related) payments, provided that such payments are made on instruments qualifying as debt for Dutch tax purposes and are made between unaffiliated parties on bona fide arm’s length commercial terms. As such, provided that a private 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 affil - iation between a credit provider and a borrower. Therefore, it should typically not be necessary for private credit providers to specifically man - age or mitigate Dutch withholding tax risk. 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
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