NETHERLANDS Law and Practice Contributed by: Marc Habermehl, Jeroen Smits, David de Groot and Max de Heer, Stibbe
The company receiving an investment in a pri - mary transaction will usually give business and tax warranties. These are usually less extensive than in a full buy-out scenario, though the level of detail also depends to a large extent on the bargaining power of the parties involved. Recourse In the case of a warranty breach that has been given by the company, the investor will have a claim against the company. Although additional security on recourse may be appropriate in cer - tain situations, escrow or personal guarantee arrangements are uncommon in such transac - tions. Also, the use of W&I insurance is not com - mon in VC investments. When making a damages claim against the company for a warranty breach, the investor should also be compensated for the loss that such damages claim imposes on its own stake in the company (ie, the damages amount must be grossed up). Damages in the Netherlands are usually paid in cash, though it is also possible (and sometimes agreed on) to pay damages in the form of shares. 4. Government Inducements 4.1 Subsidy Programmes See the Dutch Trends and Developments chap - ter in this guide. 4.2 Tax Treatment Dutch tax treatment of an investment in a portfo - lio company predominantly depends on whether the VC fund is opaque (eg, a co-operative or a private limited liability company) or tax-transpar - ent (eg, a tax-transparent limited partnership) for Dutch tax purposes, as discussed further below. It should be noted that the Netherlands does
not have a special tax regime for income and/ or gains derived from investments in growth or start/scale-up companies. Therefore, Dutch tax treatment of such investments is, in principle, equal to the Dutch tax treatment of investments made in other types of companies. Co-Operative and Private Limited Liability Company A Dutch (tax-resident) VC fund that takes the form of a co-operative or private limited liability company (or another legal form that is opaque for Dutch tax purposes) is, in principle, subject to Dutch corporate income tax on its worldwide profits at a 25.8% rate (a reduced rate of 19% applies to the first EUR200,000 of taxable prof - its). However, any income and/or gains derived from an investment in a portfolio company by such co-operative or private limited liability compa - ny is generally exempt from Dutch corporate income tax, due to the application of the Dutch participation exemption, provided that (in short) the investment represents an interest of 5% or more in (the nominal capital of) the portfolio com - pany and that certain other conditions are met. In principle, any losses incurred in respect of an investment in a portfolio also fall under the par - ticipation exemption (ie, are non-deductible for Dutch corporate income tax purposes), unless certain conditions are met, in which case (part of) such losses may nevertheless be deductible for Dutch corporate income tax purposes. Tax-Transparent Limited Partnership A VC fund in the form of a tax-transparent limited partnership (or another legal form that is treated as transparent from a Dutch tax perspective) is not subject to Dutch corporate income tax. This means that any income and/or gains derived from an investment in a portfolio company are,
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