Doing Business in the Netherlands - 2010 - by Baker & McKenzie

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Doing Business in the Netherlands

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Doing Business in the Netherlands

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2010

2010

Doing Business in the Netherlands 2010

Editorial contributions Jeroen Bedaux Bob Bekker Dirk Berendsen Roger van den Berg Michiel Bijloo Mirjam de Blécourt-Wouterse Karin Bodewes Robert Boekhorst Martijn van Broeckhuijsen Cornelien Broersma Héléne de Bruijn-Jonker Judith van Gasteren Ischa Gobius du Sart Monique van Herksen Christiaan van Hogendorp Maarten Hoelen Herman Huidink Folkert Idsinga Cees Kersten Eva Kraan Maarten van der Lande Imke van Loon Edwin Liem Misha lutje Beerenbroek Theo van Maaren Christiaan van der Meer Jean-Clément Meignen Charlotte Moerman John Paans Wouter Paardekooper Emile Poot Laura Rietvelt Marc Rijkaart van Cappellen Florian Ruijten

Remke Scheepstra Alexandra Schreuder Gooike van Slooten Jan Snel Judith Steenvoorden Fedor Tanke Jan Willem de Tombe Sebastiaan van Triest Marnix Veldhuijzen Wibren Veldhuizen Irene Vermeeren - Keijzers Edwin van Wechem Cynthia de Witt Wijnen Ruben de Wit

Table of Contents I. A. B. C. D. E. F. II. A. B. C. D. E. F. G. H. III. A. B. C. D. IV. A. B. C. D. E. F. G. H.

The Netherlands

1

The Country Cities and Infrastructure The Government The Economy The People Arts and Culture

2 3 5 6 7 8

Legal Forms of Doing Business

11

Branch Subsidiary Branch versus Subsidiary Cooperative (coĂśperatie) Societas Europaea (SE) Societas Cooperativa Europaea (SCE) Partnership Formal Foreign Companies

11 11 12 13 13 14 15 16

Regional Headquarters / Coordination Centers

17

General Advantages Tax Ruling Holding of Shares Group Financing and Group Licensing

17 18 19 20

The Subsidiary

24

Incorporation of NV and BV Incorporation of a cooperative Capitalization Transfer of shares and membership interest Shareholders’ register Issuance of new shares Board of managing directors Board of supervisory directors

24 25 25 26 27 27 28 28

I. J. K. L. V.

Proxy holders Large Companies Regime Single-member companies Developments

28 29 30 30

Sales Support, Distribution and Production

32

A. Liaison Office B. Sales Support C. Production VI. A. B. C. D. E. F. G. H. I. J. VII.

Reporting, Auditing, and Publication Requirements

34

Financial statements Director’s report Accounting principles Other information Language Currency Classification Exemption for group companies Consolidated accounts Auditing requirements

34 35 36 36 37 37 37 38 39 40

Corporate Governance Code

41

A. B. C. D. E.

Principles and Best Practice Provisions Compliance and Enforcement Management Board Supervisory Board Shareholders and General Meeting of Shareholders F. Financial Reporting

VIII. A. B. C. D.

32 32 33

41 42 43 44 46 48

Real Estate

49

Ownership Land Register Other Rights and Obligations Construction and Renovation

49 49 50 50

E. F. G. H. IX. A. B. C. D. X. A. B. C. D. E. F. XI.

Environmental Permits and Soil Pollution Spatial Planning Leases Public Housing

52 52 54 55

Labor Law

57

Term Non-Competition Clause Termination Works Council

57 58 58 65

Social Securities and Pensions

68

Social security system National Insurance Premiums Welfare provisions Employees’ Insurance Dutch Pension System

68 68 70 70 71 74

Visas, Residence Permits, and Work Permits for Non-EU Nationals

79

A. Visit to the Netherlands Not Exceeding Three Months B. Visit to the Netherlands Exceeding Three Months C. Residence permit D. Work permit E. Knowledge Migrant Workers XII. A. B. C. D. E. F. G. H.

79 80 81 81 82

Personal Income Tax

84

General 2001 Personal Income Tax Act Business Profits in Income Tax Income from Employment Income Tax Ruling Levy of Taxes Income Tax Rates Substantial Interest

84 84 85 86 87 89 89 91

XIII. A. B. C. D. E. F. G. H. I. J. K. L. M. N. O. P. Q. R. S. T. U. V. XIV.

Subsidiaries Branches Branch versus Subsidiary Participation Exemptions Capital Gains Limitations on Deductions of Interest Flow-Through Entities Dividend Stripping Tax Incentives Losses Liquidation Mergers and Demergers Fiscal Unity Investment Companies (FBI) Exempt Investment Fund (VBI) Transfer Pricing Regime European Economic Interest Grouping and Societas Europaea EU Interest and Royalty Directive EU Savings Directive EU Parent-Subsidiary Directive EU Merger Directive Summary of the Netherlands’ Bilateral Tax Treaties

93 93 98 100 101 108 108 113 114 115 117 118 119 121 122 126 128 130 131 132 132 133 133

Other Taxes

138

Value-added Tax (VAT) Real Estate Transfer Tax Withholding Tax Dividends Interest and Royalties

138 142 143 143

International Distribution Centers/Customs Facilities

144

A. Customs Value and Applicable Customs Rate B. Customs Warehouses

145 146

A. B. C. D. XV.

Corporate Income Tax

C. Other EU Customs Facilities D. Authorized Economic Operator E. VAT and Excises XVI.

Investment Incentives

A. Accelerated depreciation and environmental investment incentives B. Export Enhancing Credits C. Environmental Management and Energy Saving Incentives D. Patent Box/Innovation box: reduced corporate income tax rate E. Research and Development XVII. A. B. C. D.

XIX. A. B. C. D. E. F. G. H.

153 153 154 156 157 158

Financial Regulations

159

Exchange Control Regulations Capital/Loans Regulated Financial Activities Money Laundering

159 159 160 172

XVIII. Competition Rules and Free Movement of Goods A. B. C. D. E. F.

148 150 151

174

Competition Rules Dutch Competition Act Public Procurement Rules Import and Export: Free Movement of Goods The European Economic Area Standardization

174 176 179 182 183 183

Intellectual Property

185

Patents Copyright Neighboring rights Protection of Databases Trademarks Designs and Models Trade Names IP Enforcement Directive 2004/48/EC

185 186 187 187 188 190 192 192

I. J. K. L. M. N. O. XX.

Anti-Counterfeit Measures Advertising Advertising and freedom of expression Unfair Competition Trade Secrets Assignment, Licensing, and Pledge Treaties and General European Legislation

192 193 196 197 197 197 198

Telecommunications

199

A. Market Situation B. Basic Legislation and Regulatory Authorities Current Developments C. Registration D. Numbers E. Rights-of-Way F. Significant Market Power G. Interoperability H. Universal Services I. Privacy and Legal Interception XXI. A. B. C. D. E. F. G. H. I. J. K. L. M. N.

199 199 200 200 201 202 203 203 204 205

Information and Communication Technology (ICT)

207

General Computer Software Databases Topographies of Semiconductors Technology Transfer ICT Agreements and Standard Terms Shrink-Wrap License Agreements Source Code Escrow The Internet and E-business Encryption Data Protection Computer Crime Online Gambling Retention

207 207 208 208 208 209 210 210 210 211 212 212 212 213

XXII. A. B. C. D. E.

Liability

214

General Provisions Pre-contractual Liability Contractual Liability Non-contractual Liability (Wrongful Act) Compensation of Damages

214 214 215 217 219

XXIII. Dispute Resolution A. B. C. D. E. F. G. H. I. J. K. L. M. N.

Jurisdiction Course of the Proceedings Summary Proceedings Prejudgment Attachment Arbitration Mediation International Enforcement European Enforcement Order for Uncontested Claims International Payment Orders European Small Claims Collective Action Class Actions Inspection or Taking Copies of Certain Identifiable Documents Instead of Full Discovery Witness Hearing

XXIV. Commercial Contracts A. B. C. D. E. F. G.

Dutch Contract Law General Terms and Conditions Consumer Protection/Consumer Sales Consumer Authority Agency Agreements Distribution Agreements Franchise Agreements

222 222 223 224 225 226 227 227 228 229 230 230 231 232 233 235 235 236 236 237 237 238 239

Appendix I – Procedure for Incorporating a Dutch NV, a BV, or a Cooperative 1. Procedure 2. Documentation Appendix II – Overview of Tax Rates Inbound Income Under Dutch Tax Treaties 1. Qualifying companies column 2. Interest column 3. Royalty column Appendix III – Contact Information 1. Amsterdam Practice Groups and Teams

241 241 242 244 248 248 248 249 249

Introduction Doing business in the Netherlands is attractive from many perspectives. The Dutch economy is open and internationally oriented and for centuries international trade has been a key element in our economic system. In fact, the Netherlands is the 16th largest economy in the world and one of the ten leading exporting nations worldwide.

In 2009 the Netherlands was the EU’s second largest exporting country. To keep the economy strong and internationally competitive, the Dutch government has created a tax regime that strongly encourages entrepreneurship and foreign investment. The country has an excellent logistics and technological infrastructure, a highly skilled workforce and a stable economy.

We are proud to present to you “Doing Business in the Netherlands 2010,� a highly popular reference guide which describes the legal and fiscal environment of the Netherlands and the rules and regulations that companies must consider when doing business here. In it, a wide array of topics is discussed, such as the main aspects of establishing a profitable firm, real estate, labor law, tax and many other legal issues and regulations of relevance.

For over 60 years, Baker & McKenzie Amsterdam has assisted international businesses looking for investment opportunities in the Netherlands and advised Dutch and international companies doing business here. We have poured our knowledge and experience into this guide and we trust that you will find it to be helpful to you and your organization. Please contact our office if you have any questions, or if you, too, are interested in Doing Business in the Netherlands.

Mike Jansen Managing Partner Baker & McKenzie Amsterdam N.V.

Baker & McKenzie Amsterdam N.V. Baker & McKenzie Amsterdam is a leading provider of legal, tax and notary services.

With more than 60 years of experience in national and international legal practice, we offer Dutch and foreign multinationals unrivalled expertise and experience, locally and across borders. Our innovative, independent and pragmatic way of thinking and working helps our clients seize opportunities, minimize risks, and solve legal and tax issues.

We were the first law firm in the Netherlands to join a multinational network and to offer our services in a fully integrated manner.

Nowadays we are regarded as one of the country’s leading providers of legal services. With more than 200 attorneys, tax consultants, civillaw notaries and economists, Baker & McKenzie Amsterdam provides high-quality advice and legal services to a large number of the world’s most dynamic and successful organizations.

Within Baker & McKenzie, diversity is a business imperative in order to be a successful practice in today’s competitive global market. That is why we have, among other things, signed the Charter Talent to the Top, together with 44 prominent employers and several members of the Dutch Government. By signing this charter, we commit ourselves voluntarily, but not without engagement, to increase the number of females at the top of our organization.

Preserving cultural inheritances and participation in pro bono and community services are part of the core values of Baker & McKenzie.

In this respect, we acknowledge the importance of cultural heritage by sponsoring the 20th century photo collection of the Rijksmuseum, a showcase of works by important Dutch and international photographers from this period.

We also support the Committee for the Concertgebouw Foundation (Stichting ComitĂŠ voor het Concertgebouw), which annually stages around 400 musical performances in Amsterdam featuring local and international artists across a broad range of musical genres.

We respect the importance of children’s rights and are committed to children’s needs and concerns by providing pro bono legal advice and raising funds for the local Ronald McDonald Center Only Friends in Amsterdam, a unique sports facility designed for disabled and chronically ill children. Moreover, our professionals play an active role, such as sitting in the board of these organizations.

Baker & McKenzie is known for having a deep understanding of the language and culture of business and an uncompromising commitment to excellence. Our sincere and intellectual professionals understand and serve clients with a shared set of values and high-quality standards, providing innovative solutions wherever our clients are and whatever their needs.

I.

The Netherlands

The Netherlands is one of the best places in Europe to conduct business in the near future, according to the Economist Intelligence Unit’s (EIU) latest business environment rankings. Recent studies confirm the strength of the Dutch economy, which indicates that the Netherlands is expected to suffer less and recover quicker from the consequences of the financial crisis than other European countries.

In The Global Competitiveness Report 2009-2010, published by the World Economic Forum (WEF), the Netherlands rounds out the top 10. The country’s companies are highly sophisticated (ranking 6th on the business sophistication pillar) and are among the most aggressive internationally in absorbing new technologies (ranking 2nd for their technological readiness). Business activity is buttressed by an excellent educational system and efficient factor markets, especially goods markets, which rank 6th overall. The Netherlands is also characterized by a comparatively stable macroeconomic environment, improving on a relative basis compared with last year.

Why do companies prefer to do business in the Netherlands? One of the most important reasons is the highly educated, flexible, and motivated workforce. Furthermore, the country’s central geographical position, combined with its accessibility through excellent infrastructure and logistics services, entices numerous European, American and a growing number of Asian companies to establish their European head offices in the Netherlands. This is why more than 400 of the 500 largest companies in the world have offices in the Netherlands. In this chapter, we give you a glimpse of the excellent business environment that the Netherlands offers.

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General Information Location

Western Europe, bordering the North Sea, between Belgium and Germany

National language

Dutch

Capital city

Amsterdam

Dependencies

Aruba, Netherlands Antilles

Currency

Euro (€)

Climate

Temperate; maritime; cool summer and mild winter

A.

The Country

As the gateway to Western and Eastern Europe, the Netherlands enables companies to serve markets in the current and future Member States of the European Union, the Middle East, and Africa. Consider, for example, the Port of Rotterdam, one of the world’s largest seaports, and Schiphol Airport, recognized as one of the major aviation hubs in Europe.

The Netherlands lies on the delta of three major rivers, the Rhine, Meuse, and Scheldt. It owes its existence to feats of hydraulic engineering. A quarter of the Netherlands’s land area lies below sea level. The low-lying areas consist mainly of “polders,” flat stretches of land surrounded by dikes where the water table is controlled artificially. From the 16th century, windmills have been used not just to keep the land dry but also to drain the entire inland lakes. And since controlling water requires many parties to meet and plan together, it has forced them to learn how to work as a team. The Dutch are proud of their management skills. Their struggle to keep the land dry has helped them develop a can-do attitude. That is why their European partners and the broader international community regard the Dutch as bridge builders and often ask them to serve as such.

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Land Information Total area

41,500 km2

Land

33,800 km2

Water

7,700 km2

Land below sea level

26%

The Netherlands is sometimes called “Holland.” The word is featured in the names of two western coastal provinces, North and South Holland, which have played a dominant role in the country’s history.

B.

Cities and Infrastructure

The Netherlands has excellent infrastructure and logistics services, with good roads and world-class public transport services, thanks to its close-knit network of trains and buses. Due to its excellent logistics and technological infrastructure, the Netherlands is also classified as one of the most “wired” countries in the world, taking part as a dynamic force in electronic commerce, communications, and outsourcing.

The Netherlands plays an important role as a main port and distribution center for companies operating worldwide because of its favorable location by the North Sea. The port of Rotterdam, for example, handles some 420 million tons of goods every year and is one of the main ports in the world, while the Amsterdam Schiphol International Airport is one of the biggest airports in Europe. The Amsterdam Internet Exchange is the largest internet hub in Europe.

After New York and London, Amsterdam is the most connected city in terms of broadband capacity. These are some of the reasons the Netherlands is often called the “Gateway to Europe.”

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Traffic and Transport Main airport

Amsterdam Schiphol International Airport

Number of passengers

47,392,000

Freight capacity

1,568,000 tons

Main seaport

Rotterdam

Freight capacity

420,000,000 tons

Main internet hub

Amsterdam Internet Exchange

Administrative regions

12 provinces: Drenthe, Flevoland, Friesland, Gelderland, Groningen, Limburg, NoordBrabant, Noord-Holland, Overijssel, Utrecht, Zeeland, Zuid-Holland

Largest cities

Amsterdam: 757,861 inhabitants Rotterdam: 587,161 inhabitants The Hague: 482,742 inhabitants Utrecht: 299,484 inhabitants

Each of the major cities has a distinctive character even though they are all close to each other. Holland is a small country. Amsterdam, Rotterdam, The Hague and Utrecht all belong to the Randstad conurbation, with a population of seven million. Amsterdam attracts many tourists, with its historic center, majestic buildings, museums and a unique ring of canals. However, The Hague, Delft, Haarlem, Utrecht, Groningen, and Maastricht also have their share of historic sites, museums, traditions, and attractions.

1.

The Zuidas

The Dutch Baker & McKenzie office is located at the Zuidas in Amsterdam. The Zuidas (literally South Axis in Dutch) is a large rapidly developing business district in the South of Amsterdam. The 4

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Zuidas is also known as the “Financial Mile.� It lies between the Amstel river and the turnaround of the ringway A10. In this area, several banks, financial institutions, international law firms and consultancy agencies have chosen to locate their headquarters.

In the future, the railway station, Amsterdam Zuid, at the center of this area will become the second main station of Amsterdam. It is expected to be the 5th busiest passenger station in the Netherlands, with connections to Schiphol, Rotterdam, Antwerp, Brussels, and Paris by high-speed rail, the Thalys. It will also connect to the German highspeed network, the ICE, via Utrecht and Arnhem.

2.

Development of the Zuidas

Besides the ideal location, i.e., within close reach of Amsterdam Schiphol International Airport, the historic center of Amsterdam is nearby. The City Council of Amsterdam has always insisted that the Zuidas has to facilitate more than top business. Even the typical Dutch bicycle finds easy access. Attractive residences and recreation make up an important part of the plans. Luxury and day-to-day goods, as well as museums, theaters, restaurants, a central park and sporting facilities, are at your doorstep in Zuidas. The development of Zuidas will add a new dimension of 21st century city to Amsterdam.

C.

The Government

The Netherlands is a kingdom, officially known as the Kingdom of the Netherlands. It consists of the Netherlands itself and six islands in the Caribbean Sea: Aruba and the Netherlands Antilles.

The Netherlands itself is a constitutional monarchy with a parliamentary system in which the government consists of the queen and the ministers. For historical reasons, The Hague is the seat of government but Amsterdam is the capital. The current government is a coalition between the Christian democrats (CDA) and the socialists (PvdA) with the help of a small Christian socialist party (ChristenUnie). Jan Peter Balkenende (CDA) is the Prime Minister, while Queen Beatrix is the Head of State.

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The 2009 Budget Memorandum shows that the Dutch economy is in good shape despite global economic turbulence. Although the Netherlands has not been left unscathed and its economy is cooling, the national budget shows a surplus, the government’s plans are being implemented, purchasing power is being maintained, employment is being promoted, and innovation and profitability are being stimulated.

Head of state

Queen Beatrix

Head of government

Prime Minister Jan Peter Balkenende

Form of government

Constitutional monarchy

Seat of government

The Hague

D.

The Economy

The Dutch economy has a strong international focus, the country being one of the European Union’s most dynamic centers of trade and industry. Its global competitiveness position has strengthened, according to the 2009 report released by the World Economic Forum (WEF), with the Netherlands rounding out the top 10 in the Global Competitiveness Index (GCI).

In the decision on whether to locate in the Netherlands, high labor costs are not the decisive factor. Although strict legal protection against dismissal is an obstacle, there are numerous compensating factors. These include the fact that employment contracts are becoming more flexible, rules for admitting knowledge workers to the Netherlands are becoming more relaxed, and, last but not least, the government’s customized approach to tax facilities is a major advantage.

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Macroeconomic figures

Value

Year

Gross domestic product (GDP)

EUR 588 billion

2009

GDP per capita

EUR 32,150

2009

GDP growth

-4,2%

2009

Inflation rate

0.9%

2009

Total workforce

7,800,000

2009

Unemployment rate

3.8%

2009

E.

The People

The Dutch themselves are a surprising people. They live, all 16.5 million of them, on 41,500 square kilometers of land, little more than half the size of Scotland. The Netherlands is thus one of the world’s most densely populated countries. Dutch professionals are internationally oriented and are among the most multilingual in the world, enabling them to operate successfully in companies in any industry, serving customers across the globe.

The People Total population

16,564,029

Languages

Dutch (official), Frisian (official)

Ethnic groups

Dutch: 81%, others: 19% (of which 10% are of non-Western origin, mainly Turks, Moroccans, Antilleans, Surinamese and Indonesians)

The Netherlands is a multicultural country with a large diversity of ethnic groups. About 19% of its inhabitants are of foreign origin, with 10% of non-Western origin. Another distinctive fact is the attractive cultural climate. Dutch people are anti-authoritarian, innovative, and open-minded.

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F.

Arts and Culture

The Netherlands is a world leader in the field of arts and culture. The arts, in every form, flourish in a country that has outstanding museums and an impressive variety of classical and innovative music and theater. Major international arts festivals are held annually.

1.

Museums

With almost 1,000 museums, the Netherlands has the highest museum density in the world. Some of the most famous are the Rijksmuseum and the Vincent van Gogh Museum in Amsterdam, the Museum Boijmans-Van Beuningen in Rotterdam, the Mauritshuis in The Hague, and Het Loo Palace in Apeldoorn. Outstanding collections of modern and contemporary art may be seen at the Stedelijk Museum in Amsterdam, the KrĂśller-MĂźller Museum in Otterlo, and the Bonnefanten Museum in Maastricht.

2.

Radio, Television, and the Media

There are many independent broadcasters and print media institutions in the Netherlands. Freedom of expression is a cornerstone of the Dutch democratic system. The Media Act expressly provides that broadcasting organizations may decide the nature and content of their programs. The government is responsible for creating conditions that will enable them to fulfill their vital role in keeping the citizenry informed.

3.

Dutch Creative Climate and Dutch Design

Dutch design is famous around the world. The minimalist, economical approach that characterizes Dutch design attracts many young designers, architects, and artists who come especially to Amsterdam to work in a climate of artistic freedom, dialogue, and innovation.

The Netherlands is also renowned for its architecture and exceptional urban development. No less than 50,000 buildings are listed as monuments. The government protects them and helps pay for their maintenance.

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4.

Typical Dutch

Did you know that . . .

•

The Netherlands and Holland are the same place?

•

One-quarter of Holland is below sea level?

•

The Dutch are traders by nature? The Netherlands has a variety of experienced importers, sales agents, and distributors well versed in international trade.

•

The Dutch are the tallest people in the world?

•

The International Court of Justice is at the Peace Palace in The Hague?

•

The Netherlands has approximately 480 inhabitants per square kilometer?

•

With only 0.008% of the world’s area, the Netherlands is the world’s third largest agricultural exporter?

•

Frisian is the second official language of the Netherlands?

•

The Netherlands is a founding member of the European Union?

•

The Netherlands has at least 15,000 kilometers of cycle tracks?

•

Dutch is also spoken in Belgium, South Africa, Suriname, the Netherlands Antilles, and Aruba?

•

The Netherlands still has about 1,000 traditional working windmills?

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•

Almost every Dutch person has a bicycle and there are twice as many bikes as cars?

•

The Netherlands is the world’s largest cheese exporter?

•

The Netherlands has the highest number of part-time workers in the EU (4 in 10 people)?

•

Most Dutch people speak at least one foreign language?

•

Language is rarely a problem for businesspeople from Britain and America because about 75% of the population speaks English?

•

People from almost 200 nationalities live in Amsterdam?

•

Some 84% of Dutch households have a PC, and 80% have access to the internet?

•

The Netherlands has almost 1,000 museums – the highest museum density in the world?

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II.

Legal Forms of Doing Business

A company may engage in business in the Netherlands through a subsidiary or a branch. Compared with the laws in other EU countries, Dutch corporate law provides a very flexible and liberal corporate framework for the organization of branches and subsidiaries by (nonresident) companies or private individuals. There are no special restrictions on foreign-owned companies planning to start a business in the Netherlands.

A.

Branch

The organization of a branch of a foreign company in the Netherlands does not require prior government approval. The foreign head office should file the following documents and data with the Trade Register of the Chamber of Commerce: •

For the branch: the name, principal place of business of the company, a short description of the actual business activities, number of employees and full address of the branch.

•

For the branch manager (who does not need to be a Dutch resident): the full name, address, date and place of birth, nationality, extent of power and authority to represent the branch; signature and certified copy of an identity card (passport or driver’s license).

B.

Subsidiary

Dutch law distinguishes two types of limited liability companies: public limited liability companies (Naamloze Vennootschap or NV) and private limited liability companies (Besloten Vennootschap or BV). The main differences between these two entities are as follows: •

BVs (as opposed to NVs) cannot issue bearer shares as well as share certificates evidencing the shares.

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•

The transfer of shares in BVs (as opposed to NVs) is always subject to the blocking provisions as set forth in the Articles of Association, which may include prior approval of the general meeting of shareholders or another corporate body as designated under the company’s Articles of Association or a right of first refusal of the other shareholders.

•

BVs may be formed with a minimum issued and paid-in capital of EUR 18,000, while NVs must have a minimum issued and paid-in capital of EUR 45,000. A Dutch subsidiary may be established and owned by one or more shareholders that may either be individuals or legal entities, regardless of their nationality.

The issuance and transfer of registered shares and the transfer of a restricted right to the shares (for instance a right of pledge) require the execution of a notarial deed before a Dutch civil law notary. This obligation does not apply to NVs whose shares or share certificates are in bearer form or are officially listed on a regulated stock exchange.

BVs and NVs may merge with limited liability companies incorporated under the laws of EU Member States.

C.

Branch versus Subsidiary

The most important difference between a branch and a subsidiary lies in exposure to liability. A subsidiary has limited liability. As a result, a shareholder, in principle, is liable only to the extent of its capital contribution. A branch is not a separate legal entity; thus, the (foreign) company of which the branch forms part is fully liable for all the obligations of the latter.

Manufacturing, warehousing, and rendering of services may be carried out by both types of operations. Holding, finance, and licensing operations, on the other hand, are better conducted by a subsidiary, since it is able to benefit from tax treaties. The circumstances and 12

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relevant factors must be considered each time before a final decision is made.

D.

Cooperative (coöperatie)

Although historically used by agricultural groups, the Dutch cooperative has recently been introduced as a useful entity in (international) holding structures. The main reasons are its favorable tax treatment and its corporate flexibility. A cooperative is an association established as a cooperative by a notarial deed. The cooperative does not have shareholders, unlike an NV or a BV, but members. At incorporation, the cooperative must have at least two members (leden). By law, the cooperative’s objective is to provide for certain material needs of its members under an agreement concluded with them in the course of the business it conducts or causes to be conducted and for the benefit of its members. If a cooperative is used in a holding structure, its object is to make profits through investments. To achieve this, the cooperative enters into contribution agreements with its members, pursuant to which the members contribute capital to the cooperative. In exchange for the contributions of capital, the capital accounts maintained for each member are credited. A cooperative may distribute profit among its members. The members’ entitlement to the cooperative’s profits is usually based on their contribution.

A cooperative may be incorporated on very short notice, as there is no minimum capital, bank account and no governmental approval required.

E.

Societas Europaea (SE)

There are four ways to incorporate a European company or Societas Europaea (SE), which has a legal personality and is, in many respects, comparable to a Dutch NV: 1.

Through a legal merger between two companies based in different EU Member States.

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2.

Through incorporation of an SE as a holding company for two companies based in two different EU Member States or with subsidiaries in two different EU Member States.

3.

Through incorporation of an SE as a subsidiary of:

4.

a.

two companies based in two different EU Member States; or

b.

an SE.

Through a change of corporation form from an eligible company (e.g. an NV) to an SE.

Only legal entities may form an SE; private individuals may become a shareholder of the SE after its incorporation. An SE may transfer its registered office from one EU Member State to another. In addition, a group that has companies throughout the EU may now create a uniform management structure by forming an SE, since SEs may opt for a one-tier or two-tier board system.

F.

Societas Cooperativa Europaea (SCE)

The European Council adopted a Council Regulation providing the legislative framework which enables the incorporation of a new type of cooperative, the Societas Cooperativa Europaea (SCE). An SCE is currently able to operate across all Member States of the European Community on the basis of registration in one Member State. An SCE may be incorporated by: •

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Five or more natural or legal persons or firms that reside in or are governed by the law of at least two Member States; a merger between legal entities that have their corporate seat and head office in one of the Member States and where at least two of the entities involved are governed by the law of at least two Member States; or

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A conversion of a cooperative into an SCE.

The principal objective of an SCE is to satisfy its members’ needs.

Contrary to the Dutch cooperative, the SCE has a subscribed share capital of at least EUR 30,000. Membership of the SCE is gained through ownership of shares in the capital of the SCE. Just like the SE, the SCE may transfer its registered office from one EU Member State to another.

G.

Partnership

A partnership, whether general (Vennootschap Onder Firma or VOF) or limited (Commanditaire Vennootschap or CV), may be formed by at least two partners that may either be private individuals or legal entities. The parties conclude a partnership agreement and the partnership (not the contract) must be registered with the Trade Register of the Chamber of Commerce. The partners in a general partnership are jointly and severally liable for all obligations of the partnership. Pursuant to a limited partnership, however, the limited or “silent” partner is liable only up to the amount of its capital contribution, provided that the partner does not in any way take part in the management of the partnership vis-à-vis third parties. The limited partner is not registered with the Trade Register.

A special partnership form is the European Economic Interest Grouping or EEIG (Europees Economisch Samenwerkingsverband or EESV) for the cooperation between entrepreneurs in Europe. The EEIG is a legal form based on a European statute. An EEIG formed under Dutch law has a legal personality and enjoys fiscal transparency throughout the European Economic Area. It is suitable for joint venture activities as well as specific intra-group purposes. There are no restrictions on foreign nationals entering into a partnership with Dutch residents. The formation of an EEIG requires at least two partners which may comprise partnerships and are residing within the European Economic Area.

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H.

Formal Foreign Companies

According to the Formal Foreign Companies Act, a company that is incorporated under any law other than Dutch and that conducts its business entirely or almost entirely in the Netherlands without having any further real ties with the state under whose law it was incorporated is considered a formal foreign company.

Under the Act, the management of such company is obliged to register its deed of incorporation, Articles of Association, the number under which the company is registered, and the details of the sole shareholder (if applicable) with the Trade Register of the Chamber of Commerce in the Netherlands. Furthermore, formal foreign companies must file their annual accounts with the Trade Register of the Chamber of Commerce as well as an audit statement confirming that their issued and paid-up share capital, as well the company’s equity, is at least equal to EUR 18,000. Companies which are subject to the laws of the European Economic Area party, however, are exempted from most provisions of the FFCA.

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III.

Regional Headquarters / Coordination Centers

Regional Headquarters or Coordination Centers are generally established to supervise the operations of European and/or Middle Eastern subsidiaries. Sales coordination, administration and accounting, cash management, central billing, re-invoicing, advertising and public relations, as well as group financing and licensing, are typical activities of regional headquarters.

The Netherlands offers a central location in Europe, excellent airport facilities, a sophisticated banking system, and adequate office spaces, not to mention several tax advantages, to both companies and expatriates.

A.

General Advantages

The Netherlands has the most extensive tax treaty network among all EU Member States. Regional headquarters may apply the treaties in collecting dividends, interest, and royalties from subsidiaries. The favorable tax treatment of these activities is described below.

Expatriates who are temporarily assigned to a Dutch office may qualify for a special tax regime known as the 30% Ruling.

As a general rule, Dutch companies must report taxable income in the national currency, i.e. the Euro. They may also report taxable income in their functional currency, the US dollar for instance, if certain requirements are met, in order to avoid exchange gains and losses due to currency fluctuations. The main requirement is simply for the company to file its financial statements in the functional currency.

In August 2004, the Dutch State Secretary of Finance announced in a decree that headquarters in the Netherlands are allowed to provide intra-group services on a full-cost basis instead of applying a markup or arm’s length price. A list of activities regarded as shareholders’ costs and deductible in the Netherlands has been published.

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The Dutch corporate income tax rate is 25.5% as of 1 January 2010.

However, profits of up to EUR 200,000 are subject to 20% corporate income tax as of 1 January 2010. The tax rate of 25.5% is applicable to the excess profits.

B.

Tax Ruling

As in the case of service companies and branches discussed in Chapter III the Dutch tax authorities may approve an Advance Pricing Agreement (APA) determining the arm’s length return from activities performed and services rendered. A new tax ruling practice was introduced on 1 April 2001 to make the ruling process more transparent and bring it in line with the OECD Transfer Pricing Guidelines. The Ministry of Finance also intended the new ruling system to contribute to the improvement of the business climate for genuine economic activities in the Netherlands through a more precise and customized approach. The new ruling practice consists of an APA practice and an Advance Tax Ruling (ATR) practice. The APA practice is devoted to agreements on transfer pricing methods, arm’s length results, and operating in conformity with the OECD Transfer Pricing Guidelines. The ATR practice concentrates on providing advance certainty as to the fiscal qualification of transactions and international structures. Final APAs and ATRs are issued in the form of determination agreements governed by Title 15 of Book 7 of the Dutch Civil Code. The agreement automatically includes approval of an exchange of information clause allowing the Dutch tax authorities to share information with treaty parties. The intention in publishing issued APAs and ATRs is to guarantee transparency as required by the EU Code of Conduct. The format of the publication will be made anonymous or summarized if the identity of the taxpayer can be derived from an anonymous publication. APAs and ATRs are granted for periods of four to five years, unless the facts merit a longer or shorter term. Renewals are envisaged, absent changes in law or facts.

In order to obtain an APA, it is possible to arrange a pre-filing meeting with the Dutch tax authorities. A pre-filing meeting is generally recommended in order to determine whether an APA request is useful. In recent years, over 80% of all APA and ATR 18

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requests have been granted and the time it takes to obtain APAs and ATRs has decreased.

The Dutch State Secretary of Finance has, on various occasions, emphasized that the APA and ATR practice has his full attention and is important in safeguarding the Netherlands as a place of business for enterprises operating internationally. It is also possible to reach an agreement with the Dutch tax authorities to provide favorable tax treatment of central invoicing, leasing, and foreign exchange clearing within the group.

C.

Holding of Shares

Holding companies have no special tax status under the laws of the Netherlands. Tax benefits are available to all companies holding shares in Dutch or foreign subsidiaries. The Dutch tax authorities are willing to issue ATRs on the applicability of the participation exemption for intermediate holding companies in international situations and for ultimate holding companies.

Dividends received by a Dutch company from non-resident subsidiaries are fully exempt from Dutch income tax under certain conditions (see application participation exemption as described in Chapter XIII). The exemption also applies to capital gains upon the disposal of shares in subsidiaries. With respect to capital losses and costs related to the subsidiary, reference is made to Chapter XIII, Section C. As of 1 January 2004, thin capitalization rules have been introduced in the Netherlands (reference is made to Chapter XIII). Tax treaties concluded by the Netherlands generally provide that withholding tax on dividends distributed to a Dutch company holding at least 25% of the shares in the distributing company is reduced to a substantially lower percentage, or even to zero. Appendix II contains a chart indicating the reduction of foreign dividend withholding tax rates under the tax treaties concluded by the Netherlands. Those treaties also reduce Dutch dividend withholding tax on dividends distributed Baker & McKenzie

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by the Dutch company to its foreign parent to a substantially lower percentage, or even to zero (Appendix II). Pursuant to the implementation of the EU Parent-Subsidiary Directive on 1 January 1992, dividend distributions from most qualifying subsidiaries situated in the EU to a qualifying Dutch company are exempt from (foreign) withholding tax.

Furthermore, dividend distributions by a qualifying Dutch company to most of its qualifying EU parent companies are exempt from Dutch withholding tax (see Chapter XIII, Section Q).

The Dutch dividend withholding tax on dividends to a foreign parent may, under certain circumstances, be reduced by a 3% credit for foreign dividend withholding tax paid on qualifying dividends received by the Dutch company.

D.

Group Financing and Group Licensing

The Netherlands is particularly attractive to group financing activities.

The tax treaties concluded by the Netherlands generally reduce the foreign withholding tax on interest paid to a Dutch company to a substantially lower percentage, or even to zero. Appendix II contains a chart with the available reductions. Moreover, the Netherlands does not impose any withholding tax at source on interest or any stamp duty on the issuance of bonds.

Dutch subsidiaries of foreign companies engaged in licensing (i.e. as a licensee of patents, trademarks, or technology with the right to sublicense those intangibles) qualify for special income tax treatment.

Moreover, the tax treaties entered into by the Netherlands provide for a reduction of foreign withholding tax on royalties to a substantially lower percentage, or even to zero, if they are paid to a resident of the Netherlands. Appendix II contains the available reductions. The Netherlands does not levy withholding tax on outgoing royalties. As a result, royalties may flow through a Dutch company at nominal tax cost.

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Pursuant to the implementation of the EU Interest and Royalties Directive as of 1 January 2004, interest and royalty payments from most qualifying subsidiaries situated in the EU to a qualifying Dutch company are exempt from (foreign) withholding tax.

The Dutch tax authorities are willing to issue APAs to determine the arm’s length income for Dutch finance companies and Dutch licensing companies. A Dutch BV engaged in financial services may obtain a ruling regarding its Dutch tax position only if it meets the following requirements: The BV has sufficient substance in the Netherlands. A BV is deemed to have sufficient substance if the following conditions are met: •

At least 50% of all authorized directors are tax residents of the Netherlands.

•

The directors residing in the Netherlands have the relevant professional knowledge and skills to execute their obligations as directors.

•

The (main) directorial decisions are taken in the Netherlands.

•

The BVs (main) bank account is maintained in the Netherlands.

•

The BVs accounts are kept in the Netherlands.

•

The BV is a tax resident of the Netherlands and is not deemed a resident of any other country.

•

The BV should have an appropriate level of equity that enables it to conduct its business.

•

At the time conditions a to g above are verified, the BV must have met all the requirements for the proper filing of various tax returns.

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The Dutch tax authorities will not issue a ruling if the BV will not incur any risk on the functions it conducts based on the ruling.

Conduit financing entities meet this condition if their equity is at least the lower of 1% of the total outstanding loans or EUR 2 million.

Please note that this equity must be at risk for financing activities.

This safe harbor provision applies to each entity to which the company provides loans. If more than one loan is provided to an entity, the safe harbor provision must be prorated.

If the second requirement (i.e. no risk) is the only one that cannot be met but there is sufficient substance, a ruling may be obtained if the company gives the Dutch tax authorities the liberty to provide information spontaneously to the countries from which the interest or royalty will be received. According to the Dutch State Secretary of Finance, the information that is spontaneously exchanged concerns structure, functions, risks, and remuneration. In order to determine an arm’s length remuneration, a functional analysis must be made based on the OECD Transfer Pricing Guidelines. This margin may also be lower than the 0.125% of the sliding scale under the “old” ruling policy. Under the situation previous to 1 April 2001, it was not necessary to build up a file to defend the intercompany pricing.

Currently, an APA could be applied for, if desired, but there is no requirement to do so in order to start conduit financing and licensing activities in the Netherlands.

The Dutch tax authorities may conclude an agreement with a flowthrough entity regarding the substance and risk requirements of a Dutch finance company and/or a Dutch licensing company only if certainty in advance is also requested for the arm’s length nature of its remuneration.

Dutch entities that do not incur a genuine risk in respect of intra-group loans or royalty transactions are no longer permitted to credit the foreign withholding taxes related to interest or royalty income. The interest and royalties received and paid are excluded from the taxable income in the Netherlands, provided that:

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1.

the Dutch entity receives and pays interest or royalties to and from an entity within the same group;

2.

the interest and royalties received and paid relate directly or indirectly to financing or royalty transactions that are closely connected; and

3.

the flow-through company does not incur a genuine risk that may affect its equity.

A flow-through company is deemed to incur a genuine risk in respect of a loan if the equity is at least 1% of the outstanding loans or EUR 2 million and the taxpayer can prove that the equity capital will be affected if a risk arises. Even though the interest and royalty income as well as the expenses are excluded from the taxable income, the flow-through entity must still report arm’s length remuneration with regard to services relating to the loan or royalty transaction.

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IV.

The Subsidiary

A.

Incorporation of NV and BV

An NV (Naamloze Vennootschap met beperkte aansprakelijkheid or public limited liability company) and a BV (Besloten Vennootschap met beperkte aansprakelijkheid or private limited liability company) are incorporated by one or more incorporators pursuant to the execution of a notarial deed of incorporation which includes the company’s Articles of Association.

The notarial deed of incorporation must be executed in the Dutch language before a Dutch civil-law notary in the Netherlands. Prior to incorporation, a statement of no objection from the Ministry of Justice as well as a bank statement must be obtained.

The statement of no objection is a declaration of the Ministry of Justice that is issued after verification of data on the parties involved as incorporators, managing directors and ultimate beneficial owners.

The bank statement, to be issued by a bank registered as a credit institution pursuant to the Dutch Financial Supervision Act (Wet op het Financieel Toezicht) or whose business operations are subject to governmental supervision in another Member State of the European Communities or in another state in the European Economic Area that is a party to the Agreement, confirms that the incorporation capital has been transferred to a bank account in the name of the NV or the BV in incorporation.

If on incorporation it is agreed that a non-cash contribution shall be made on shares, a Dutch qualified auditor must issue a statement in respect of the contributed assets. The statement must confirm that the value of the contribution to be made, established by means of generally acceptable valuation methods, at least equals the amount payable of the incorporation capital.

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The name of the company is followed by “NV” or “BV,” and in case an “NV” or a “BV” is in the process of formation, the abbreviation “i.o.” (“in oprichting,” in the process of being incorporated) is annexed to the name. An NV or a BV is allowed to conduct business during the pre-incorporation period and the NV i.o. or the BV i.o. may be registered with the Trade Register of the Chamber of Commerce.

The persons acting on behalf of the NV i.o. or the BV i.o. are personally liable until the NV or the BV is duly registered in the Trade Register and has ratified the actions performed on its behalf during the pre-incorporation period.

B.

Incorporation of a cooperative

A cooperative is incorporated by the execution of a notarial deed in the Dutch language by a Dutch notary in the Netherlands. Unlike the N.V. and B.V., no Ministry of Justice approval and bank statement or auditor’s statement is required for incorporation of the cooperative.

Dutch law requires that a cooperative be incorporated by at least two incorporators. Unless the deed of incorporation explicitly states otherwise, the incorporators automatically become members of the cooperative upon incorporation.

The word “coöperatief” must be included in the official name of the cooperative as well as one of the following abbreviations: W.A. (full statutory liability), B.A. (limited liability) or U.A. (excluded liability), which indicates the level of liability of its members. Upon incorporation, the cooperative is registered with the Trade Register of the Chamber of Commerce.

C.

Capitalization

An NV and a BV must have an authorized and issued capital, divided into a number of shares with a par value expressed in euro. Shares without a par value are not permitted. Upon formation, at least 20% of the authorized capital must be issued and at least 25% of the par value of each share issued must be paid in. The minimum issued share capital is EUR 45,000 for an NV and EUR 18,000 for a BV. Baker & McKenzie

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The identity of shareholders who have not fully paid their shares must be listed with the Trade Register of the Chamber of Commerce.

There is no statutory requirement for a cooperative to maintain a minimum amount of capital. The Articles of Association or the separate members’ agreement may oblige a member to contribute funds or assets to acquire a membership interest in the cooperative.

D.

Transfer of shares and membership interest

An NV has an authorized capital divided into transferable – bearer or registered – shares and a BV has an authorized capital divided into registered shares. Bearer shares are freely transferable upon delivery of the related share certificates. Registered shares may be ordinary, preferred or priority shares. Registered shares issued by an NV may be freely transferred, subject to any restrictions contained in the company’s Articles of Association. The Articles of Association of a BV must stipulate limitations on their transferability. Such restrictions require the transferor to either offer the shares to the other shareholders (“right of first refusal”) or obtain prior approval for the transfer from the general meeting of shareholders or any other corporate body of the company as specified in the Articles of Association.

The transfer of registered shares in an NV and a BV requires a notarial deed of transfer to be executed before a Dutch civil-law notary in the Netherlands. The transfer of shares is recorded in the shareholders’ register. The registration with the Trade Register of the Chamber of Commerce is updated accordingly in case of a sole shareholder.

Membership interests in the cooperative may be held by private individuals, legal entities and partnerships, either foreign or Dutch.

The Articles of Association may provide that membership interests are freely transferable or may subject transfers to certain restrictions, such

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as prior consent of the board of managing directors, general meeting of members, or meeting of a certain class of membership interests.

E.

Shareholders’ register

The board of managing directors of an NV and a BV with registered shares must keep a shareholders’ register at the registered office of the company. The register shall contain the company name, statutory seat, NV or BV number, authorized and issued share capital, the number of all registered shares, the names and (electronic) addresses of the shareholder, pledgor, and usufructuary, the extent to which the par value of the shares has been paid up as well as the particulars of the incorporation, any amendment to the Articles of Association, and issuance, transfer, pledge, attachment, or usufruct on the shares.

Each shareholder, pledgor, or usufructuary of shares has the right to inspect the shareholders’ register and receive a certified excerpt. Any amendment or adjustment in the shareholders’ register requires the signature of one of the managing directors.

F.

Issuance of new shares

Upon issuance of registered shares, at least 25% of the par value of the shares must be paid up. With bearer shares, payment must be made in full upon issuance. Shares may also be paid in kind, provided that an auditor’s statement is obtained, confirming that the value of the contribution in kind is equal to or exceeds the total par value of the issued shares. The amount exceeding the total value is considered non-stipulated share premium.

The issuance of registered shares requires a notarial deed executed before a Dutch civil-law notary in the Netherlands and is recorded in the shareholders’ register. The registration with the Trade Register of the Chamber of Commerce is updated accordingly.

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G.

Board of managing directors

The NV, the BV and the cooperative are managed by a board of managing directors consisting of one or more members appointed by the general meeting of shareholders or members, who also have the authority to dismiss them. A managing director may be a private individual or a legal entity, either foreign or Dutch. From a Dutch corporate law point of view, none of the managing directors needs to be a Dutch resident.

The Articles of Association state the number of managing directors and whether a managing director is solely or jointly authorized to fully represent and bind the company. A provision to this effect may be invoked against third parties.

The Articles of Association may provide that a number of specified acts of the board of managing directors require prior approval of the shareholders, the board of supervisory directors or another corporate body. These may not be invoked against third parties unless they are aware of this provision and have not acted in good faith.

H.

Board of supervisory directors

An NV, a BV, and a cooperative may institute a supervisory board to advise and supervise the managing directors, but are not to participate in management affairs. Only a private individual may be appointed as a supervisory director. Supervisory directors are appointed and dismissed from their positions through the general meeting of shareholders or members. No person may serve as managing director and supervisory director at the same time.

I.

Proxy holders

Dutch law does not recognize the concept of officers. The board of managing directors may appoint proxy holders and grant them limited or unlimited power of attorney. The title and scope of the authority are determined by the management board. The determination may be subject to the prior approval of the board of supervisory directors or 28

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the meeting of shareholders or members. At all times, the persons appointed shall act under the responsibility of the board of managing directors. The proxy holders are known to third parties due to the registration with the Chamber of Commerce.

J.

Large Companies Regime

An NV, a BV or a cooperative is subject to the Large Companies Regime if the company, in three consecutive years, meets the following criteria: •

The issued capital of the company, together with reserves as reflected in the balance sheet, amounts to at least EUR 16 million.

•

The company and/or an affiliated company (i.e., an enterprise in which the company owns at least 50% of the shares) has installed a Works Council.

•

Together, the company and its affiliate(s) employ an average of at least 100 employees in the Netherlands.

As a consequence hereof, the NV, BV or cooperative should institute a board of supervisory directors, which will then appoint the board of managing directors. A company may voluntarily apply to be subject to the Large Companies Regime. Provided certain conditions are met, a mitigated Large Companies Regime is available to the NV or BV. The board of managing directors, in this case, will be appointed by the general meeting of shareholders instead of the supervisory board.

An international holding company that restricts its activity exclusively or almost exclusively to the management and financing of group companies and of its and their participations in other legal persons may be exempted from the Large Companies Regime, provided that the majority of their employees, employed by the company and by the legal persons with which it forms one group, work outside the Netherlands.

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K.

Single-member companies

A single-member company is an NV or a BV in which all the shares are held by a single legal entity or a private individual. The sole shareholder must be registered with the Trade Register of the Chamber of Commerce and all legal acts between the sole shareholder and the company must be in writing if they are beyond the scope of the company’s day-to-day business and the company is represented by the sole shareholder that is also the company’s managing director.

L.

Developments

The Dutch Parliament is currently discussing a draft bill that will make significant changes in the law applying to BVs. The new legislation will mean a greater distinction between the BV and the NV. The new system will also provide additional ways of complying with the wishes expressed by legal practice because a number of mandatory legal requirements will be dropped and “directory law” will apply. More options will therefore be open to someone who is setting up a BV. The intention is not to introduce a new type of legal entity in addition to the existing BV but to amend the current law so that, ultimately, the applicable construction will be more flexible.

In addition to the aforementioned draft bill, the Ministry of Justice has submitted a legislative proposal to introduce the possibility of installing a one-tier board of management directors composed of executive and non-executive directors. Currently, Dutch law provides only for the so-called two-tier board system consisting of a board of managing directors with executive directors and a separate board of supervisory directors with supervisory directors. The aim of this legislative proposal is to create a legal framework for improving the supervision of directors who are charged with the management of an NV or a BV. Finally, a legislative proposal was submitted with the aim of replacing the present system of preventive supervision of legal persons (NV, BV, SE or SCE) with a system of permanent supervision. Once this bill is effective, prior approval of the Ministry of Justice will no 30

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longer be required when a B.V., N.V., SE or SCE company is incorporated.

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V.

Sales Support, Distribution and Production

A foreign company considering establishing production and/or sales operations in the Netherlands or in Europe is likely to carry out the project in phases.

A.

Liaison Office

At the initial phase, a liaison office may be opened in order to explore the market and to establish contacts with prospective customers. The office may provide information about the company’s products and maintain a supply of goods or merchandise for display. Activities may include delivery, advertising, and collection of information for the benefit of the foreign headquarters. In more general terms, the office may also carry out preparatory or supporting activities exclusively for the benefit of the foreign headquarters. These activities are generally non-taxable under Dutch tax treaties if conducted in a manner in which the entity will not be deemed a permanent establishment for tax purposes.

B.

Sales Support

If the start-up phase proves to be successful, the company may decide to expand the activities of the liaison office to include sales support and distribution activities, such as processing, packing or repacking, (central) distribution, shipping, invoicing, repair, marketing, and promotion. The Dutch tax authorities may be requested to issue an Advance Pricing Agreement in which the company and the tax authorities define an arm’s length remuneration for the services (to be) rendered by the Dutch company (in general, companies are required to submit an indication of an arm’s length return on services rendered on the basis of a transfer pricing study that is in line with the OECD Transfer Pricing Guidelines). As long as the company performs few functions and bears little risk, the arm’s length return required may be moderate.

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C.

Production

If the company enters into a third and final stage by organizing a fullfledged production and sales operation (with the customary business risks for bad debts, etc.), it will be required to report an arm’s length remuneration in respect of its activities and the risks to which it is exposed. However, the company will then also qualify for the tax benefits available to Dutch companies, such as an investment allowance for business assets, accelerated depreciation of certain assets, and generous loss compensation privileges. These facilities are described in Chapter XIII.

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VI.

Reporting, Auditing, and Publication Requirements

A.

Financial statements

The annual accounts of a Dutch NV, BV, or Cooperative consist of the balance sheet, the profit and loss account, and explanatory notes and the consolidated annual accounts if applicable. Cooperatives shall substitute the profit and loss account for a statement of operating income and expenses.

Each year within five months1 after the end of the financial year of the company, annual accounts are prepared by the board of managing directors. The annual accounts shall be signed by all managing directors and supervisory directors. If one or more of their signatures are missing, this shall be stated giving the reason therefor. The annual accounts are submitted to the general meeting of shareholders or members for adoption. In special circumstances, the general meeting of shareholders or members may provide for an extension of six months2. The adoption should take place within two months3 after the preparation. In case the NV or BV is subject to the Large Companies Regime, the annual accounts are also to be submitted to the company’s Works Council. Depending on the size of the business, the annual accounts must be accompanied by a director’s report and an auditor’s report.

The board of managing directors must file the adopted annual accounts with the Trade Register of the Chamber of Commerce within eight days after the adoption by the general meeting of shareholders or members. In the event that the annual accounts are not adopted within 1

The board of directors of a Cooperative should prepare the annual accounts within six months after the end of a financial year.

2

The members of a Cooperative may grant an extension of at most five months.

3

The members of a Cooperative should adopt the annual accounts within one month after the board prepared those.

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two months after the period permitted by law, i.e., within thirteen months after the end of a financial year, the board of managing directors should file forthwith the draft annual accounts with the Trade Register of the Chamber of Commerce with a reference to their draft status.

If a Cooperative has not installed a supervisory board and no auditor’s report is submitted to the general meeting, an audit committee consisting of at least two persons (none of whom can be a managing director) has to be appointed annually by the general meeting, which will report on the annual financial documents provided by the board of managing directors.

B.

Director’s report

The board of managing directors must draw up the director’s report.

Small companies4 are exempt from this obligation. The report shall give a true and fair view of the position on the balance sheet date and of the course of the business during the financial year.

The director’s report contains information on expected future business, particularly (unless this conflicts with legitimate interests) on investments, financing, personnel, the development of turnover and profitability as well as information about research and development activities. Pursuant to the Dutch Corporate Governance Code, listed NVs are expected to devote a chapter in the annual report to the broad outline of their corporate governance structure, to the compliance with the corporate governance code, as well as to the non-application of any best practice provisions.

4

Companies have to comply on two consecutive balance sheet dates with

two of the following three criteria: (i) the value of the assets reflected on the balance sheet is not more than 4.4 million euros (ii) net turnover during a financial year does not exceed 8.8 million euros and (iii) the average number of employees does not exceed 50.

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The effect on the projections of unusual events which need not be reflected in the annual accounts shall be disclosed. The director’s report may not conflict with the annual accounts.

C.

Accounting principles

The annual accounts, prepared in accordance with generally accepted accounting principles, shall provide such a view enabling a sound judgment to be formed on the assets and liabilities and results of the company and, insofar as the nature of annual accounts permits, of its solvency and liquidity. If so justified by the international structure of its group, the annual accounts may be prepared in accordance with generally accepted accounting principles in one of the member states of the European Communities. If the company makes use of the aforementioned possibility, it shall make a statement in the explanatory notes of its annual accounts.

Small-sized companies, as defined below, are allowed to use the valuation principles, which are used in their corporate tax filings when preparing their statutory annual accounts (“commerciële jaarrekening” in Dutch). This is to prevent the preparation of two different sets of annual accounts.

D.

Other information

The annual accounts prepared by the board of managing directors may include an auditor’s report or information as to the reason for its absence, proposed allocation of profits including the determination of amounts available for dividends or the treatment of losses for the financial year, a summary of profit-sharing certificates or similar rights, important events after the balance sheet date which have material financial consequences and a list of branches, and the countries where those branches are located.

Furthermore, Dutch law contains detailed requirements for the composition of the balance sheet, as well as the profit and loss statement, the explanatory notes, the valuation principles and determination of the results.

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E.

Language

The annual accounts and the director’s report must be written in Dutch, unless the general meeting has resolved to use another language. The annual accounts and director’s report must be translated into Dutch, French, German, or English prior to the filing with the Trade Register of the Chamber of Commerce.

F.

Currency

The sums quoted in the annual accounts must be expressed in euros.

However, if justified by the activity of the company or the international structure of its group, its annual accounts may be prepared in foreign currency.

G.

Classification

The minimum reporting, auditing, and publication requirements depend on the size of the company. It may suffice for small- and medium-sized companies to publish an abridged balance sheet and explanatory notes. A small company does not need to publish its profit and loss accounts and other information; medium-sized companies must publish an abridged version of their profit and loss account.

Small-, medium-sized, and group companies whose accounts are included in the consolidated accounts of another company are subject to less stringent reporting, auditing, and publication requirements. A company qualifies as small-, medium-sized, or large if it meets certain criteria.

Financial information on subsidiaries is used to determine the size of a company as if the company were required to consolidate, unless it is exempt from group consolidation requirements. A company will not be reclassified unless and until it meets two or three of the criteria of another category for two consecutive years:

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Small-sized

Medium-sized

Large

Total assets

< EUR 4.4 M

< EUR 17.5 M

> EUR 17.5 M

Net turnover

< EUR 8.8 M

< EUR 35 M

> EUR 35 M

Employees

< 50

< 250

> 250

H.

Exemption for group companies

Subject to strict requirements, a group company may be exempt from its reporting, auditing, and publication requirements. The exempt group company has the right to prepare an abridged version, consisting solely of its individual annual accounts; it does not need to prepare a director’s report, nor does it have to comply with certain auditing and publication requirements. In order to make use of the exemption, the following requirements must be fulfilled: •

The exempt company’s financial information has been consolidated by another company whose accounts have been drawn up in accordance with the Seventh EC Directive;

•

The consolidating company has declared in writing that it assumes joint and several liability for any obligations arising from legal acts by the exempted company;

•

The shareholders or members have declared in writing their agreement to derogate from the statutory requirements after the commencement of the financial year and before the adoption of the annual accounts;

•

The consolidated accounts, the director’s report, and the auditor’s report have been drawn up in or translated into Dutch, French, German or English; and

•

The declarations and documents are to be filed for deposit with the Chamber of Commerce.

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I.

Consolidated accounts

The company which solely or jointly with another company heads its group shall include consolidated annual accounts in the notes to its annual accounts, showing its own financial information and of its subsidiaries in the group and other group companies.

The obligation to consolidate shall not apply to information concerning: •

group companies, the combined significance of which is not material to the whole;

•

group companies, the required information of which can only be obtained or estimated at disproportionate expense or with great delay;

•

group companies, the interest in which is only held for disposal.

Consolidation may be omitted if: •

on consolidation, the company qualifies as a small company;

•

no company to be involved in the consolidation has securities in issue officially listed on an exchange; and

•

the company has not been notified in writing by at least 1/10 of its members or by holders of at least 1/10 of its issued capital of an objection thereto within six months from the commencement of its financial year.

A part of a group may be excluded from the consolidation, provided: •

the company has not been notified in writing by at least 1/10 of its members or by holders of at least 1/10 of its issued

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capital of an objection thereto within six months from the commencement of its financial year; •

the financial information which the company should consolidate has been included in the consolidated annual accounts of a larger entity;

•

the consolidated accounts and the director’s report are prepared in accordance with the Seventh EC Directive or similar principles; and

•

the consolidated accounts, the director’s report, and the auditor’s reports are drawn up in or translated into Dutch, French, German, or English and submitted to the Trade Register of the Chamber of Commerce.

J.

Auditing requirements

Medium-sized and large companies are required to have their annual accounts audited. Annual accounts of group companies that do not need to be drawn up in accordance with the legal requirements due to group exemptions or consolidation do not need to be audited. The external auditor must examine whether the annual accounts provide the requisite legal disclosures and whether the annual accounts, the director’s report, and other information comply with the statutory requirements. It should also be verified that the director’s report does not conflict with the annual accounts. The auditor must be a Dutch certified public accountant or a foreign auditor licensed to practice in the Netherlands and is to be appointed by the general meeting of members or shareholders. If the shareholders fail to do so, the board of supervisory directors or managing directors may be authorized to appoint the accountant.

The reporting and publication requirements described above apply to all formal foreign companies.

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VII.

Corporate Governance Code

The Dutch Corporate Governance Code (the “Code”) applies to Dutch N.V. companies with an official listing in the Netherlands or abroad.

Furthermore, the Code applies to Dutch N.V. companies with a balance sheet value of >EUR 500 million and which shares or depositary receipts of shares are admitted to the trading on a multilateral trading facility in the European Union or comparable system outside the European Union. The Code is designed as a selfregulating code of conduct, albeit after the introduction of the Code, the Dutch legislator designated the Code in 2004 as the code of conduct to which Dutch listed companies should refer in their annual report. In a special chapter of their annual report, as an attachment to the annual report or at the company’s website, such listed companies must explain the extent to which they did not comply with the principles and best practice provisions during the relevant financial year (“the comply or explain principle”). Moreover, various best practice provisions have been introduced into Dutch Company law, for example, decisions of the board of directors of N.V. companies (either listed or unlisted) on important acquisitions or divestitures of such N.V. companies are now subject to approval at the shareholders’ meeting, and following the relevant and currently existing provisions of the Code, proposals have been made to amend Dutch Company law in order to implement provisions on the management and supervision by a one-tier board.

A.

Principles and Best Practice Provisions

The Code was amended on 10 December 2008, setting forth five general principles, each followed by specific best practice provisions.

Listed companies are to comply with each principle and provision or alternatively disclose in writing (in a separate chapter of the annual report, as an attachment to the annual report, or at the company’s website) why and to what extent a particular best practice provision does not apply to them (“comply or explain”). The amended Code has to be reflected in the company’s annual accounts for the financial year 2009 and onwards.

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The Code is divided into several chapters containing recommendations in relation to: 1.

compliance with and enforcement of the Code itself;

2.

the Management Board;

3.

the Supervisory Board and its committees;

4.

the shareholders and the General Meeting of Shareholders, and;

5.

the audit of the financial reporting and the position of the internal auditor function and of the external auditor.

Below are the main recommendations of each chapter. The full text and further information (although limited in English) may be found in the Committee’s website: www.commissiecorporategovernance.nl.

B.

Compliance and Enforcement

The Management Board and the Supervisory Board are responsible for the company’s corporate governance structure and its compliance with the Code. Any deviations from the principles and best practice provisions should be specifically disclosed, discussed, and approved during the General Meeting of Shareholders. Any major changes in compliance with the Code in the years thereafter should again be disclosed and discussed at the shareholders’ meeting following the year in which they are implemented. The Netherlands Authority for the Financial Markets (Autoriteit Financiële Markten) will check whether the company has included such chapter in the annual report, attached such chapter to the annual report, or published it on the company’s website, and if such chapter is consistent with other information in the annual report. It is up to the General Meeting of Shareholders to decide whether the explanation of the company is satisfactory.

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C.

Management Board

•

A Management Board member is appointed for a maximum term of four years, renewable for a maximum of four years at a time.

•

The Management Board is responsible for managing the company’s business risks and drafting a risk control policy.

•

The Management Board reports annually on the functioning of the internal risk management and control systems, including significant changes and planned improvements in that respect, and declares in the annual report, among other things, that the internal risk management and control systems are working adequately and do not contain material inaccuracies.

•

The Management Board must ensure that there is a way for employees to report alleged company irregularities of a general, operational, and financial nature to its chairperson or to a designated official (“whistleblower protection”).

•

A Management Board member may have no more than two Supervisory Board seats in listed companies and may not serve as chairman of the Management Board of another listed company. Membership in the Supervisory Board of other companies within the group to which the company belongs does not count for this purpose.

•

In the event of an (intended) takeover bid on shares in the company, the Management Board and the Supervisory Board must consider all interests involved.

•

The Supervisory Board shall be closely involved in the takeover process.

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•

Options granted to Management Board members shall not be exercised within three years after they have been granted.

•

Shares granted to Management Board members without consideration must be retained for a period of at least five years, or at least until termination of their employment with the company.

•

Compensation upon dismissal or resignation of Management Board members may not exceed their salary for one year (based on the “fixed” remuneration component), unless this will be manifestly unreasonable.

•

The most important elements of the remuneration package, including the level of prearranged compensation upon dismissal (“golden parachutes” and severance packages) and change of control clauses, must be disclosed.

D.

Supervisory Board

•

Each Supervisory Board member must be capable of assessing the company’s general policy and must have the specific expertise required to fulfill tasks that form part of the role assigned to him or her within the framework of the Board’s profile. The Supervisory Board shall aim to have a diverse composition (in terms of age and gender).

•

The annual report must state if the composition of the Supervisory Board differs from the Board’s profile.

•

All Supervisory Board members must actively seek sufficient information in order to form a sound and well-informed opinion.

•

Upon their appointment, Supervisory Board members must follow an introduction program dealing with general financial and legal affairs, specific aspects that are unique to the

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company in question, and their responsibilities. The Supervisory Board shall conduct an annual review to identify aspects in which its members require further training or education during their period of appointment.

•

At least one member of the Board must be a financial expert in the sense that he or she has relevant knowledge of and experience in financial administration and accounting.

•

No one may simultaneously serve in more than five boards of listed companies (being chairman of a board counts as double).

•

A Supervisory Board member may be appointed for a maximum of three successive four-year terms.

•

The Supervisory Board must prepare an annual remuneration report containing extensive information on the Management Board remuneration policy. This report is submitted for approval to the shareholders’ meeting.

•

Prior to preparing the annual remuneration policy and adopting the remuneration of individual managing directors, the Supervisory Board shall analyze the possible outcomes of variable remuneration components as well as their consequences. Variable compensation must be based on longterm objectives and should be in line with the risk profile of the company. The Supervisory Board has the authority to change the value of the variable remuneration components a posteriori. In the event variable remuneration has been paid on the basis of incorrect (financial) information, the Supervisory Board may claim repayment thereof.

•

Each Supervisory Board with four or more members must have an audit committee, a remuneration committee, and a selection and appointment committee, each with specific detailed responsibilities.

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•

In the event of (suspected) accounting irregularities, the audit committee must be the external auditor’s primary contact.

•

The chairmanship of the audit committee may not be fulfilled by the Chairman of the Supervisory Board or by a former member of the Management Board.

•

The same applies to the remuneration committee, with the additional exclusion of any Supervisory Board member who is a Management Board member of another listed company.

•

The Supervisory Board is assisted by the company secretary.

The Management Board has the authority to appoint and dismiss the company secretary after obtaining approval from the Supervisory Board.

•

The Code contains detailed provisions regarding the activities of the various Supervisory Board committees.

•

The company shall adopt a set of regulations governing ownership of and transactions in securities by Management Board and Supervisory Board members, other than securities issued by their “own” company.

•

The composition and functioning of a Management Board comprising both members having responsibility for the dayto-day operations of the company (executive directors) and members not having such responsibility (non-executive directors) shall be such that proper and independent supervision by the latter category of members is assured.

E.

Shareholders and General Meeting of Shareholders

•

Holders of depositary receipts shall, without limitation and in all circumstances, be entitled to attend and vote at the General Meeting of Shareholders on the basis of a proxy.

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•

A proposal on the agenda of the General Meeting of Shareholders, which is subject to shareholders’ approval or authorization, requires a written explanation from the Management Board.

•

Material changes to the articles of association of the company and proposals for the appointment of Management Board and Supervisory Board members shall be presented separately to the General Meeting of Shareholders.

•

The company must offer its shareholders, as well as other persons who are entitled to vote, the opportunity to deposit their proxy to vote with an independent third party prior to the General Meeting of Shareholders.

•

The company must formulate a policy on the outlines of bilateral contracts with shareholders and publish this policy on its website.

•

The profit retention/dividend policy will be placed on the agenda of the annual meeting, and changes in this policy will be submitted thereto.

•

Institutional investors must publish annually their policy on the exercise of voting rights ensuing from shares held in listed companies and disclose, on request, how they have voted on specific cases.

•

Shareholders must have access to the shareholders’ meeting by webcast or telephone.

•

Shareholders may exercise their right to place items on the agenda only after having a consultation round with the Management Board. The Management Board must respond within a reasonable period, which in any case may not be longer than 180 days after the date on which the proposal to place items on the agenda is submitted.

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F.

Financial Reporting

•

Considerable attention is given to the companies’ financial reporting. The audit committee, composed of individual Supervisory Board members, will play an active role in supervising the functioning of the internal accounting department and the risk management and control systems in general.

•

The external auditor shall attend meetings of the Supervisory Board and the audit committee at which the annual accounts will be approved or adopted. Detailed recommendations will be given in relation to the content of the auditor’s report, and the external auditor has the direct obligation to answer the questions that may be posed by Supervisory Board members and at the General Meeting of Shareholders.

•

The Management Board is responsible for the quality and completeness of publicly disclosed financial reports.

•

The Supervisory Board shall supervise the monitoring of the internal procedures for the preparation and publication of all financial reports.

•

The external auditor may be asked questions at the shareholders’ meeting in relation to his or her statement on the fairness of the annual accounts.

•

The external auditor shall attend the meetings of the audit committee and the Supervisory Board in which decisions will be made on the periodic external financial reporting.

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VIII. Real Estate A.

Ownership

A buyer of immovable property becomes the owner of that property after it has been turned over. The transfer of title of immovable property requires a notarial deed, which must be entered in the land register, after which the turnover is complete and the buyer is the owner of the property. The owner can use the property at his or her own discretion, since ownership is the most complete right to a piece of property. The only exception is if there are restrictions attached to ownership based on statutory provisions or (unwritten) law.

B.

Land Register

Real estate is registered in the land register, which is publicly accessible. The information recorded includes ownership, mortgages, easements and other in rem rights, as well as any court orders relating to real estate and administrative enforcement decisions. Also, some other administrative restrictions in the use of real estate are registered (such as designations as a protected building). Leases that do not grant in rem rights are not recorded in the land registers. Purchase and sale agreements can be made without specific formalities if these concern business or office space.

Since September 2003, a new law has governed purchase and sale contracts for homes when the buyer is a private individual. Purchase and sale contracts must be in writing. The buyer (who is a private individual) has the option of dissolving the purchase and sale contract within three working days without specifying a reason by informing the seller thereof.

The amendment of the law in September 2003 has also made it possible for the buyer (of any immovable property) to register the purchase contract in the land register, which gives the buyer protection within the period that the purchase and sale contract and the deed of transfer are signed. The transfer of ownership of real estate requires the formal execution of a notarial deed by a civil law notary Baker & McKenzie

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in the Netherlands. The same applies to the establishment and transfer of in rem rights in general, including mortgages.

C.

Other Rights and Obligations

In addition to formally executing the notarial deed, which the buyer of immovable property must file with the land register, the buyer should investigate all legal aspects of the property by consulting the land register. It is also sensible for the buyer to investigate whether the existing zoning plan allows the use of the property, if it can change adversely and to ask the seller whether he is aware of any of changes of the existing zoning plan.

In the Netherlands, the seller is, by virtue of the law, in principle obliged to transfer the immovable property without any restrictions or burdens unless the buyer expressly accepts these restrictions and burdens. This imposes on the seller the additional obligation to disclose all information on the immovable property. The seller must inform the buyer of all rights vested in the immovable property, i.e., the rights that are known to him. Case law demands that the buyer also has an investigation responsibility.

Some of the restricted rights can be divided into rights attached to a certain capacity and servitude. Rights attached to a certain capacity are those arising from an agreement and relate to immovable property, for instance, an agreement with a neighbour to refrain from uprooting a tree. An example of servitude is the obligation to tolerate rainwater falling from the neighborâ&#x20AC;&#x2122;s roof on oneâ&#x20AC;&#x2122;s own yard. If the seller has not informed the buyer of such rights, the buyer - under certain circumstances - can order the seller to have those rights cancelled or to pay him a lump sum.

D.

Construction and Renovation

The Netherlands is a small but densely populated country.

Consequently, the use of space for residential and business purposes is tightly regulated. The zoning plan sets out specifically how land is to be used and developed. The zoning plan contains regulations on a 50

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detailed scale for every plot of land in a Municipality. These regulations may concern the use of the plot (i.e. agricultural, industrial, residential etc.) as well as the dimensions (building height, volume, number of stories) of the buildings allowed and even the exact location of a new building on a plot of land. If the actual use of the plot deviates from the prescribed use in the zoning plan, the Municipality may enforce compliance with the zoning plan by imposing an order for incremental penalty payments.

The zoning plan is the decisive instrument for granting or denying a building permit by the Municipality. Issuing the building and the environmental permit is harmonized. The coordination rule that applies to the building permit and the environmental permit plays a part in the establishment or expansion of a facility.

On the requirements that the buildings and renovation of buildings have to meet, the Dutch Housing Act (Woningwet) applies. Under the Dutch Housing Act, municipalities are obliged to adopt a building ordinance (bouwverordening) containing building and renovation regulations. A building ordinance does not include technical building regulations, but it contains regulations prohibiting the building of structures on polluted soil, regulations regarding building demolition and requirements regarding the external appearance of buildings. The technical regulations are included in the Building Decree (Bouwbesluit). According to the Dutch Housing Act (Woningwet), any application for a building permit will be assessed against several criteria: compliance with building and usage regulations in the Zoning plan, compliance with municipal building regulations (bouwverordening), compliance with the Dutch Building Decree (Bouwbesluit), requirements pursuant to the Monuments Act (Monumentenwet), requirements regarding the external appearance of buildings (welstandsvereisten).

If the owner of a plot of land wishes to build a house or a homeowner wishes to renovate his home, he must consult the Housing Act (Woningwet) to determine whether a building permit is required. This Act divides buildings into three types: those for which a regular Baker & McKenzie

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building permit is required, those for which a light building permit is required and those that do not require a permit. The buyer should first investigate whether a (light) permit is required as regards the construction of the building. In most cases, a regular building permit will be required.

Zoning law, in particular as it relates to the zoning plan and the building permit, is enforced by the authorities, which have a wide range of instruments at their disposal to ensure observance thereof.

E.

Environmental Permits and Soil Pollution

Both in asset (real estate) and share transactions, it is of utmost importance to give sufficient attention to the possible presence of soil pollution, as well as to requirements regarding environmental permits.

One of the key elements of the Dutch Environmental Management Act (Wet milieubeheer) is the “integrated environmental permit.” This permit is an important regulatory instrument linked to the setup, change and operations of an establishment.

The Dutch Soil Protection Act (Wet bodembescherming) makes a difference between the concepts of “new” and “historic” pollution. In short, with regard to new pollution, all companies bear a general liability for maintenance.

Practice has shown that these and other environmental issues can be dealt with satisfactorily by means of timely due diligence combined with clear contract language and, where appropriate, negotiations with the relevant authorities.

F.

Spatial Planning

In July 2008, a new Spatial Planning Act (Wet ruimtelijke ordening) came into force. This act is aimed at simplifying proceedings (such as those required to adopt a new zoning plan) and at reducing the number of instruments the authorities have at their disposal.

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1.

Spatial planning

In the last decades, the increase in the scale of spatial planning which renewed economic growth and technological developments have all affected the way in which decisions related to spatial planning are made. This often means that they have to be better, more integrated and enforced more quickly. This has made the processes involved more complex.

The aim of the new Spatial Planning Act (Wet ruimtelijke ordening) is to simplify the system, to have the responsibility shared properly among the various layers of government and to have government and provincial policy implemented throughout the system.

In the new Spatial Planning Act (Wet ruimtelijke ordening), a clear difference has been made between spatial planning policy and its (legal) implementation. The zoning plan occupies a central position.

A new element is the structural concept in which authorities describe their spatial planning policy. These new structural concepts replace the current key planning decision (at the national level), regional plans (at the provincial level) and structure plans (at the regional and municipal level). One advantage of this is the shorter procedure, which allows parties to quickly take advantage of new possibilities and opportunities. Among other things, the Spatial Planning Act (Wet ruimtelijke ordening) also means that: •

a shortened zoning plan procedure is reduced from over a year to 26 weeks;

•

zoning plans must be digitalized;

•

provincial authorities may no longer approve zoning plans;

•

provinces and the State can give indications in the zoning plan procedure;

•

a fast construction procedure (project decision) is enforced;

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•

there is a 2% excess for compensation for loss resulting from government planning decisions;

•

the permit-issuing body has the option of coordinating licensing procedures and of combining them into a single appeal/objection procedure (coordination scheme); and

•

zoning plans must be updated or whose period is extended every 10 years.

2.

Permits

The General Provisions for the Environment Act (Wabo) is an important element of the Dutch government’s desire to reduce the pressure of regulation on citizens and businesses. It involves the amalgamation of around 25 licensing systems, of which 11 are decentralized. These range from national regulations for building, housing and the environment to municipal demolition and tree-felling permits. However, due to legislative difficulties, this Act is not expected to come into force any sooner than 2010.

G.

Leases

Leases are subject to various statutory provisions and administrative regulations. The three most important lease regimes are: office space, commercial space and housing.

With respect to office space, a semi-mandatory system applies, which allows parties to – to a great extent - freely negotiate the rent and other terms of their agreement on the basis of prevailing market conditions.

The rental price is often indexed on the basis of a price index figure.

Upon termination of a lease, the courts can grant protection from eviction to a tenant for a maximum of three years.

With respect to retail business space, a more complicated and more regulated semi-mandatory system applies, which reduces the freedom to execute contracts, for instance, with respect to the term and termination of the lease (by providing protection from eviction and 54

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compulsory renewal). The system also allows the courts to control the rental price. Leases for retail business space have a five-year term (unless special circumstances apply) with an option allowing the tenant to renew the contract for another five years. After five years, the landlord can terminate the lease agreement only on exceptional grounds and the landlord cannot terminate the lease agreement out of court.

With these provisions, the law aims to protect the tenant’s business interests. The lease of housing is an even more regulated area of Dutch law. Considerable mandatory law should be taken into account for the protection of the tenant, the most significant rules of which relate to the termination of the lease and the rental price.

For all three types of leases, the Dutch Real Estate Council provides a standard ‘‘ROZ’’-contract, which also provides for a set of general conditions, that form an integral part of the contract. This ‘‘ROZ’’ contract contains certain derogations from mandatory law, that have been approved and is quite landlord-friendly.

H.

Public Housing

The Dutch government aims to ensure that there is sufficient housing for various social population groups and promote a suitable living environment. To this end, the Dutch government has implemented the Housing Act (Woningwet), which stipulates the obligations and powers of the different housing authorities and regulates the government’s housing policy.

One of the effects of the decentralization of public housing is that the government provides new regulations under the Housing Act only if housing for a particular population group is under threat. The Housing Act is implemented primarily by municipalities and housing corporations, and to a lesser extent, by provinces and the Ministry of Housing, Spatial Planning and the Environment (Ministerie van Volkshuisvesting, Ruimtelijke Ordening en Milieu). The supervision of public housing is assigned to the inspector general of housing, the Baker & McKenzie

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provincial inspectors and their civil servants. Due to demographics and planning, the Netherlands has suffered a general shortage of housing resources. It is therefore important that sparse housing resources be allocated in a just and fair manner. The government sees to this by issuing housing permits under certain circumstances. The regulations with respect to housing allocation are laid down in the Housing Allocation Decree (Huisvestingsbesluit), which is based on the Housing Allocation Act (Huisvestingswet), and on the Housing Allocation Act itself, according to which a person is free to decide where he wishes to reside. This right may only be restricted insofar as it is essential for the balanced and fair allocation of housing.

Government interference as regards housing is justified only when it concerns housing for people with a relatively â&#x20AC;&#x153;weakâ&#x20AC;? position in the housing market. Municipalities may restrict the right to freedom of establishment on the basis of a municipal housing allocation ordinance that regulates the time and conditions for granting housing allocation permits.

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IX.

Labor Law

A.

Term

An employment contract may be concluded verbally or in writing. A written contract may take the form of an agreement or a letter signed by both parties. In either case, the employer is obliged to inform the employee in writing of the conditions applicable to his/her employment. The information to be provided by the employer is based on statutory law and must include, but not be limited to, the following: •

the parties’ identities and places of residence;

•

the place of work;

•

the length of the employee’s normal working day or week;

•

the initial base salary and any other pay components, vacation days, and the applicable notice period; and

•

whether a pension arrangement is in place.

An employment contract may be concluded for an indefinite term (“an open-ended contract”), for a specified term (“a fixed-term contract”), or for a specific task or project. If no term or specific task or project is specified, the contract will be considered to be for an indefinite term.

1.

Probationary Period

Parties to a contract may agree on an initial probationary period in writing only. The length of the probationary period must be the same for both parties. The statutory maximum probationary period for an indefinite-term employment contract is two months. That for a fixedterm employment contract is one month if the contract covers a period of less than two years, and two months if the contract covers a period of two years or more. Deviations to the detriment of the employee are possible only pursuant to a collective labor agreement. If the maximum probationary period is exceeded, the probationary period Baker & McKenzie

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will be invalid altogether. During the probationary period, either party may terminate the contract at any time without observing a notice period and without any liability for severance pay, unless the termination is, for instance, based on discriminatory reasons. At the employee’s request, the employer must provide the reasons for termination of the employment contract during the probationary period.

B.

Non-Competition Clause

Non-competition clauses, applicable to a certain scope of activities, a certain geographical area, and for a certain number of years, are common in the Netherlands. In order to restrict an employee validly from accepting competing employment after termination of the employment contract, the non-competition clause must be agreed upon in writing and signed by both parties and the employee must be at least 18 years of age at the time of signing.

Mere reference to a non-competition clause in a collective labor agreement and/or internal rules and regulations will in principle not suffice. A request for enforcement of a non-competition clause by the employer may be restricted or denied by the court. The court may deny the request of the employer to enforce the non-competition clause if an employee will become too restricted in finding a new job by the non-competition clause, which is too broad. A non-competition clause may become invalid if the responsibilities ensuing from the employee’s position are substantially amended in the course of employment.

C.

Termination

•

Open-ended Contracts

An employer must obtain prior written approval from the Dutch public employment service UWV WERKbedrijf (“UWV”), formerly known as “the Central Organisation for Work and Income” (“CWI”), before it can give a notice of termination of an employment contract. After obtaining approval from the UWV, the employer may terminate the 58

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employment contract with due observance of the statutory or agreedupon notice period, unless there is a statutory prohibition against giving notice (for instance, in case of illness or pregnancy).

A dismissal by an employer without the prior approval of the UWV is void. The procedure for obtaining approval usually takes four to eight weeks, depending on the nature of the case. This period excludes the notice period to be taken into account after obtaining approval.

Refusals of requested approvals are not uncommon. â&#x20AC;˘

Fixed-term Contracts

An employment contract entered into for a specified fixed term or for a specific task or project in principle terminates by operation of law upon expiration of the term or completion of the task or project, without the need for a prior notice. However, fixed-term contracts which do not contain a clause allowing premature termination by giving notice may result in the obligation of the employer to compensate the employee financially (in an amount equal to the salary for the remaining time period of the agreed-upon fixed term).

If an employer enters into consecutive fixed-term contracts with the same employee, the last contract entered into will terminate by operation of law (without the need for a notice of termination upon obtaining approval from the UWV as set out above) as long as the total number of contracts entered into does not exceed three and the total duration of these fixed-term contracts does not exceed 36 months (e.g., three contracts of one year each or two contracts of 18 months each). If more than three fixed-term employment contracts are concluded between the same parties at intervals not exceeding three months, or if the total duration of consecutive contracts is three years or more, the last employment contract will be considered by statutory law as a contract for an indefinite period for which prior approval to give a notice of termination must be obtained from the UWV. A fixed-term employment contract of three years or longer may be extended once for a fixed period of no more than three months Baker & McKenzie

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immediately after the initial fixed-term contract expires, without resulting in an open-ended contract and therefore without resulting in the obligation to give a notice of termination.

1.

Termination by Mutual Consent

All employment contracts may be terminated at any time by mutual consent between the employer and the employee, with or without observance of the statutory or agreed-upon notice period and with or without payment of compensation to the employee. It is important for the employer to ensure that the employeeâ&#x20AC;&#x2122;s consent to the agreement is explicit and unambiguous. It is therefore recommended that the employer tells the employee to seek legal advice in this respect before accepting any offer for a termination of the employment contract by mutual consent.

2.

Immediate Termination for Urgent Cause

Either party to an employment contract (employer or employee) may be faced with circumstances in which one cannot be reasonably expected to continue the employment relationship (for urgent reasons). If the employee causes such circumstances, the employer will be entitled to terminate the contract effective immediately. The employee will have a similar right if the employer causes such circumstances. The law sets forth a number of examples of â&#x20AC;&#x153;urgent causes,â&#x20AC;? such as gross negligence in the performance of duties, disclosure of trade or professional secrets, theft, fraud, embezzlement, or crimes involving breach of trust. However, only the competent court determines whether the facts of a given case actually constitute an urgent cause, justifying an immediate termination. (a)

Termination by the Court

An employer or an employee may at any time file a request with the Cantonal Division of the competent court to dissolve an employment contract. These courts specifically handle employment matters and operate independently from the UWV.

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The Cantonal Division of the competent court will dissolve a contract only if there is a “serious cause.” A serious cause may be an “urgent cause” (i.e., reasons as described above) or a “change in circumstances” which justifies termination of the contract.

Dissolution by court order may be requested at any time, whether the contract is fixed-term or open-ended, and even if the employee is (for example) pregnant, sick or disabled. The employer must, however, be able to prove that the request for dissolution of the employment contract is not in any way related to the employee’s illness, pregnancy, or any other statutory prohibition to give notice.

In case of termination based on a change in circumstances, the competent court may decide to award compensation to the employee based on the principle of reasonableness. Whether such compensation is awarded and how much is awarded depends on several circumstances (e.g., the employee’s age, position, future prospects, number of years of employment). Courts commonly use the “Cantonal Court Formula” in calculating the level of severance pay: A x B x C, where A is the number of weighed years of service, B is the average gross monthly salary and C is the “adjustment factor.”

Until 1 January 2009, factor (A), the number of weighed years of service, was calculated as follows: each year of service worked until the age of 40 counted as 1; each year of service between the age of 40 and 50 counted as 1.5 and each year of service after the age of 50 counted as 2.

With effect from 1 January 2009, factor (A) has been calculated differently based on published revised recommendations of the courts.

The age brackets have been revised, as well as the value of service years worked in those age brackets. The years of service until the age of 35 are now multiplied by 0.5; those between 35 and 45 are now counted as 1; those between 45 and 55 are multiplied by 1.5 and those from age 55 and over are now multiplied by 2. Periods of six months plus one day (and longer) are rounded off to whole years of service.

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The basis for the average monthly salary (B) is the fixed (gross) monthly salary plus all fixed and agreed-upon salary components: holiday allowance, 13th month pay and average bonus payments if these have been paid on a regular basis. Other perquisites, such as pension premiums, are in principle not taken into account. Case law, however, shows that under some circumstances, courts consider stock benefits to be part of the employee’s salary and, for that reason, take the rights under a Stock Option Plan into account when calculating severance pay. It may even rule to continue a Stock Option Plan after termination of an employment contract.

In a “neutral” situation, i.e., in which neither party is to blame, the adjustment factor (C) is set at 1. If termination of the employment contract may be blamed on the employer, the factor will be set at a higher level. If the employee is to blame, the factor will be set at less than 1.

As of 1 January 2009, in fixing factor (C), the courts pay more attention to the employee’s labor market position and the employer’s financial position. If the employer is able to demonstrate, by means of an annual report, accounts and well-documented forecasts, that it is incapable of paying compensation, the adjustment factor may be adjusted downwards. In addition, employers that have invested in their employees’ training courses may be required to pay lower severance payments. Furthermore, employees performing work in a branch of industry with a major shortage of labor may be awarded lower severance payments, considering that these employees require less financial protection.

A maximum severance payment applies to older employees who are about to retire. The underlying idea is that the severance payment for employees whose retirement date is in sight should in principle not exceed the income they would have received until their retirement age had they remained employed. This maximum severance payment is calculated based on the reasonably expected retirement age.

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It must be noted that courts do not always apply the above recommendations and formula in case of employment contracts which have lasted less than two years. (b)

Manifestly Unreasonable Dismissal

Even if an employer has terminated an employment contract with due observance of the notice period after obtaining prior approval from the UWV, the dismissal may nevertheless be manifestly unreasonable. A dismissal is considered “manifestly unreasonable” if, for instance, the consequences of the dismissal are unreasonably harsh on the employee (in view of the severance payment, if any, awarded by the employer and the likelihood that the employee will find suitable employment elsewhere) compared with the interests of the employer.

If an employee believes that his/her dismissal is manifestly unreasonable, he/she may start legal action in an attempt to obtain (additional) financial compensation. A question which has long been contemplated is whether this compensation must also be calculated based on the Cantonal Court Formula as set out above.

In July 2009, a majority of the Dutch Courts of Appeal rendered judgments containing a “new” formula (“the XYZ-formula”) for calculating compensation in cases of manifestly unreasonable dismissals. Based on this XYZ-formula, the level of compensation which the Court sets in case of manifestly unreasonable dismissal is determined by multiplying the number of weighed years of service (X) by the most recent gross monthly salary (Y) and an “adjustment factor” (Z). The X-factor – the number of weighed years of service – is determined in the same way as factor (A) in the former Cantonal Court Formula as set out above. The Y-factor – the most recent gross salary – is equivalent to factor (B) in the (current) Cantonal Court Formula. In the Z-factor, all circumstances at the time of the dismissal are taken into account and weighed. The judgments of the Courts of Appeal have listed several circumstances as particularly relevant, such as the length of employment, the employee’s age, the availability of other (suitable) work, the financial consequences of the termination, the facilities provided to the employee and the financial compensation Baker & McKenzie

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offered. However, in principle, the maximum compensation is to be calculated based on a Z-factor of 0.5. The Z-factor will only be higher in exceptional circumstances. The Court’s judgments do not explain when such exceptional circumstances occur. Please be advised that there is also resistance to this new formula. It is unclear if the Supreme Court will uphold the XYZ-formula in pending litigation.

This new formula may not be applicable for a very long time if the Supreme Court rules that it is not to be used by the lower courts. (c)

Managing Director

Terminating the employment contract of a Managing Director (in Dutch, “statutair directeur”) appointed pursuant to the Articles of Incorporation of a legal entity is different from terminating an employment contract with a regular employee. The reason is that a Managing Director has a twofold relationship with the company: a corporate relationship and an employment relationship.

Depending on the company’s Articles of Incorporation, the shareholders’ meeting is, in most cases, authorized to dismiss a Managing Director from his/her corporate position. The Managing Director must be given timely notice of the meeting and his/her intended dismissal and must be given the opportunity to defend himself/herself and render an advisory vote. The employment contract of the Managing Director may in principle also be terminated by the same shareholders’ resolution, as the employer does not need to get prior approval from the UWV to give a notice of termination of a Managing Director’s employment contract. In the case of such a dismissal, the notice period should in principle be observed in full.

However, for Managing Directors specifically, this is not a legal requirement. The employer could replace the notice period by paying (at least) the equivalent of the salary due during such notice period.

Payment of additional compensation may be required, depending on the circumstances. If no compensation is offered, the termination may be deemed manifestly unreasonable, in which case the former

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Managing Director may sue the company and claim (additional) financial compensation.

As stated above, a distinction must be made between the corporate and employment relationships of the Managing Director. After the aforementioned requirements are met, the Managing Director’s corporate position and employment position will be terminated. The case is different, however, if the Managing Director has reported ill before he/she receives the invitation to the shareholders’ meeting. In that event, the meeting of shareholders may dismiss the Managing Director from his/her corporate position but may not dismiss him/her as an employee, as the Managing Director is protected by the prohibition against giving notice during an illness as a regular employee. In such cases, the employer has no other recourse but to submit a written request for dissolution of the employment contract to the competent court.

In the event that the company has established a Works Council and the Managing Director is the consultation partner of the Works Council (in Dutch, “bestuurder,” within the meaning of the Dutch Works Councils Act), the Works Council must be requested for its prior advice on the intended dismissal of the Managing Director before the decision to dismiss him/her is taken and implemented.

D.

Works Council

Under the Dutch Works Councils Act, enterprises with 50 or more employees must establish a Works Council. Part-time employees and those who are hired in or out are, in principle, also counted in determining the number of employees. The purpose of the Dutch Works Councils Act is to promote consultation between management and employees with regard to the business and policies of the company. The members of the Works Council are chosen directly by the employees from among their own ranks. The number varies from 3 to 25, depending on the number of employees of the company. One of the members is appointed as a chairperson. A Managing Director may not be a member of the Works Council. The Works Council has no Baker & McKenzie

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executive power and, in general, may only advise management in connection with the companyâ&#x20AC;&#x2122;s business. The management of the company and the Works Council must meet at least twice a year.

During such meetings, discussions about subjects concerning the company that either management or the Works Council believes merit deliberation are held. The management has an obligation to provide the Works Council with the necessary data and documentation (such as the financial results and the legal structure of the company) and to inform it about the results and the prospects of the company.

The Works Council also has a right to information on the scope and content of the terms and conditions of employment with respect to different groups of employees, the income development between the different groups of employees in the company, and the development in relation to the previous year. The management has an obligation to provide the Works Council with this information.

The management must furthermore consult the Works Council on a number of important intended decisions, such as those related to the transfer of control of the company, the termination of or a major change in the companyâ&#x20AC;&#x2122;s activities, major investments, significant reorganizations, mergers, takeovers, changes in location or major workforce layoffs and dismissals. In principle, the Works Council must also be consulted on the appointment and dismissal of a Managing Director if the latter has sole authority, or shares joint authority with others, over the workforce. It must be noted that failure to comply with these consultation obligations in practice often results in substantial delays, unwanted media exposure, court proceedings and unrest among employees and (where applicable) trade unions.

The Works Council has the power of consent on a limited number of decisions that directly affect employment conditions, such as pension plans or in-house employment regulations.

Members of the Works Council are obliged to observe strict confidentiality with respect to what they learn or discuss during meetings with management. In principle, they may not be dismissed 66

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from employment during their membership without the courtâ&#x20AC;&#x2122;s permission.

The Dutch Works Councils Act also contains consultation obligations for companies which do not have a works council. For example, companies with at least 10 but less than 50 employees without a Works Council are required to set up a â&#x20AC;&#x153;staff representation committeeâ&#x20AC;? if the majority of the employees so request. Management must consult with the staff representation committee on a number of subjects, such as intended decisions which may result in job losses or major changes in the working conditions of at least a quarter of the employees working in the company. Small companies with less than 10 employees may also set up a staff representation committee on a voluntary basis. The committee has the same facilities at its disposal as a staff representation committee in a company with 10 to 50 employees. However, its powers are more limited. If an enterprise with at least 10 but less than 50 employees neither has a staff representation committee nor a Works Council, it is obliged to give its employees the opportunity to meet with the entrepreneur twice every calendar year during a personnel meeting. The Dutch Works Councils Act provides the personnel meeting with the same advisory powers as the staff representation committee.

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X.

Social Securities and Pensions

A.

Social security system

With respect to the social security system within the Netherlands, a distinction can be made between: â&#x20AC;˘

National insurance

â&#x20AC;˘

Welfare provisions and

â&#x20AC;˘

Employee insurance

B.

National Insurance

The types of insurance in the National insurance system in general apply to all residents of the Netherlands, irrespective of their nationality and whether they are working. There are some exceptions to this general rule, e.g., for assigned employees and employees who are (also) working abroad. The following Acts fall under this category: 1.

General Old Age Pensions Act (Algemene Ouderdomswet or AOW)

This national pension insurance provides for a basic old-age pension for all residents of the Netherlands. The AOW benefit is accrued between the ages of 15 and 65 with 2% for every insured year and differs for singles, single parents with children up to age 18 and married couples or registered partners. Currently the standard pension age for the AOW is 65. However, a legislative proposal will be submitted to the House of Representatives on short notice in order to postpone the pension age for AOW to 67 (except for some groups of older employees).

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2.

General Surviving Relatives Act (Algemene Nabestaandenwet or Anw)

Under specific conditions, the Anw provides benefits for the partner of the deceased, and his/her (half) orphans. These conditions involve taking care of a child under age 18 who does not belong to another family, or being disabled for at least 45% or born before 1950 and being younger than 65 years.

3.

General Child Benefit Act (Algemene Kinderbijslagwet or AKW)

The AKW provides benefits with regard to children, stepchildren and foster children up to age 18. The amount of the benefit depends on the age of the child and whether the child lives at home.

4.

Exceptional Medical Expenses (Compensation) Act (Algemene Wet bijzondere ziektekosten or AWBZ).

The AWBZ insures all residents in the Netherlands against risks for exceptional expenses, which are not covered by the Health Insurance Act (see item 5 below).

5.

Health Insurance Act (Zorgverzekeringswet or Zvw) and the Act on the Health Insurance allowance (Wet op de zorgtoeslag or Wzt).

The Zvw obliges all residents of the Netherlands and all individuals who work in the Netherlands and pay tax on wages, to take out at least a standard insurance for medical expenses. The employee is compensated by its employer and / or the social security authorities for the mandatory income-related contribution of 6.9% (in 2009) of the annual salary maximized to an annual salary of EUR 32,369 (in 2009). The employees, however, pay tax on wages and premium on national insurance over the amount of the compensation. The Wzt provides under certain conditions extra health insurance allowance (zorgtoeslag).

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C.

Premiums

In general, all premiums paid within the national insurance system are levied with and part of the personal income tax rates. The premiums are levied up to an income of 32,738 (2010). As of 1 January 2010, 17.9% is levied for the AOW premiums, 12.15% for the AWBZ and 1.10% for the ANW premiums. The AKW premium is 0% because it is funded by the government.

D.

Welfare provisions

The welfare provisions fill the gap of insufficient (family) income to a social minimum with regard to a specific life situation or provide for specific provisions or compensation with regard to a life situation. The following Acts fall under this category: 1.

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Social Securities Supplements Act (Toeslagenwet or TW) a.

Invalidity Insurance (Young Disabled Persons) Act (Wet arbeidsongeschiktheidsvoorziening jonggehandicapten or Wajong)

b.

Regulations governing Contributions towards the Upkeep of Multiple and Severely Physically Disabled Children Living at Home (Tegemoetkoming onderhoudskosten thuiswonende gehandicapte kinderen or TOG)

c.

Older and Partially Disabled Unemployed Workers Income Scheme Act (Wet inkomensvoorziening oudere en gedeeltelijk arbeidsongeschikte werkloze werknemers or IOAW)

d.

Older Unemployed Workers Income Scheme Act (Wet inkomensvoorziening oudere werkloze werknemers or IOW)

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e.

Older and Partially Disabled Former Self-Employed Persons Income Scheme Act (Wet inkomensvoorziening oudere en gedeeltelijk arbeidsongeschikte gewezen zelfstandigen or IOAZ)

f.

Work and Social Assistance Act (Wet werk en bijstand or WWB)

g.

Artists’ Work and Income Act (Wet werk en inkomen kunstenaars or WWIK)

h.

Act providing pregnancy and childbirth benefits to the self-employed (Wet Zwangerschaps- en bevallingsuitkering zelfstandigen or ZEZ, in effect as of June 4, 2008).

i.

Social Support Act (Wet maatschappelijke ondersteuning or Wmo)

The Wajong, the ZEZ and the TW are executed by the Authority for Employee Insurance (UWV). The other Acts are executed by the local authorities (gemeenten) or the National Insurance Institute (Sociale verzekeringsbank or SVB). The Acts are funded by the Dutch government.

Over the past few years, Dutch government has severely tightened the conditions for qualifying for the Welfare provisions and the National insurance allowances.

E.

Employees’ Insurance

Performing employment activities in the Netherlands in general leads to compulsory insurance in compliance with the following Acts: •

Sickness Benefits Act (Ziektewet or ZW)

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Under the Dutch Civil Code, an employer is in principle obliged to pay 70% of the last salary (maximized till 70% of the maximum daily wage) of the employee during the first 104 weeks of disability or up to the date of termination of the employment contract if that date is earlier. During the first 52 weeks, the salary should at least be equal to the minimum wage. The maximum daily wage amounts EUR 185.46 per work day as of July 2009) â&#x20AC;˘

Disablement Insurance Act (Wet op de arbeidsongeschiktheidsverzekering or WAO) and Work According to Labor Capacity Act (Wet Werk en Inkomen naar Arbeidsvermogen or WIA).

The WAO and WIA both insure employees for a wage replacement benefit after 104 weeks of full or partial disability. The WAO is applicable to employees who became disabled before 1 January 2004.

The WIA has replaced the WAO. The WIA creates more incentives for rehabilitation and reintegration of employees into the workforce.

The contributions for the WIA and WAO are paid by the employer.

When employing an unemployed individual who has reached the age of 50, the employer does not have to pay the basic contribution for the WAO and WIA. Moreover, in 2009, certain reductions for the basic WAO/WIA contribution apply to employers who employ certain groups of employees (for example, older employees who are (partly) disabled or who have been unemployed for a long period of time).

1.

IVA and WGA

The WIA divides disability into two plans: one for individuals who are incapable of working due to full permanent disability (IVA) and one for individuals who are deemed able to work and therefore can earn some income (WGA). Based upon the IVA, as of 1 January 2007, full and permanent disabled employees are entitled to 75% of their last salary, maximized to the maximum daily wage. Based upon the WGA, partially disabled employees are entitled to a wage-related benefit maximized to the maximum daily wage. In the first two months, the 72

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benefit amounts to 75% of the monthly wages minus the current income. After these two months, the benefit amounts to 70% of the monthly wages minus the current income. The duration of this benefit as of 1 January 2008 can be 3 till 38 months depending on oneâ&#x20AC;&#x2122;s employment history. Individuals who are less than 35% disabled (but who earn more than 65% of the maximum hourly wage) (maatman inkomen per uur) are not eligible for WGA benefits or IVA benefits.

Under certain conditions, additional serial benefits and/or supplemental wage benefits may be applicable.

The WGA and IVA contributions are paid by the employer. The basic WGA and IVA contribution is equal for all employers (in 2009, 5.70% of the income assessable for national insurance). The percentage of the differentiated WGA contribution depends on the disability risk of the company and whether the employers decided to either self-fund this disability benefit and/or to insure this risk with private insurers or pay contributions to a government agency (Authority for Employee Inusrance, UWV).

2.

Unemployment Insurance Act (Werkloosheidswet or WW)

The WW insures employees and civil servants under certain conditions against the financial consequences of unemployment. The WW benefit for the first two months is 75% of the most recent salary (maximized by the maximum day wage) and 70% from then on. The duration of the benefit will depend on the labor history of the employee and whether the employee meets certain conditions, e.g., not receiving other benefits (like IVA or WGA benefits). As of 2007, volunteer aid also counts as part of oneâ&#x20AC;&#x2122;s labor history.

3.

The New National Assistance Act (Nieuwe Algemene Bijstandswet or NABW).

The NABW helps people to provide basic living standards for themselves when they are not entitled to any other benefit.

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F.

Dutch Pension System

The pension system in the Netherlands is based on a three-tier system: •

The first tier of the Dutch pension system is the national pension insurance known as the AOW, a national insurance on which the premiums are levied with and part of personal income tax rates. There is no relation between the amount of the AOW benefits and the amount of contributions paid. All residents of the Netherlands are entitled to AOW when they reach the age of 65. However, a legislative proposal will be submitted to the House of Representatives on short notice in order to postpone the pension age for AOW to 67 (except for some groups of older employees).

•

The second tier of the pension system consists of old-age pension benefits, agreed upon by or mandatory applicable to the employer and employee, which is supplementary to the AOW. Sometimes the second-tier pension includes disability pension, supplementary to WIA benefits, or, more often, a surviving relative pension supplementary to ANW benefits.

(See AOW, WIA and ANW benefits above under National insurance.) The second-tier pensions are financed by contributions paid by the employer to the pension provider.

These contributions may be shared between the employer and employee. There are many ways in which the second-tier pension benefits can be arranged (see below).

•

The third tier of the Dutch pension system consists of private insurance for the employee’s salary that is in excess of the second-tier benefits.

1.

Second Tier

In January 2007, the Dutch Pension Act came into force and replaced the former Dutch Pension and Savings Fund Act. These Acts described conditions for the second-tier pension. The Pension Act, 74

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however, offers more clarity about responsibilities and liabilities between the employer, the employee, and the pension provider.

In principle, employers are not obliged to provide for pension, unless contractually agreed upon or a government initiative so requires. The latter applies if the employer falls within the scope of a mandatory Industry Wide Pension Fund (Verplichtgesteld Bedrijfstakpensioenfonds, BPF) which applies for an entire branch (industry). Please be informed that based upon the Dutch Pension Act, a new employee who forms part of a group of employees (which group has offered a pension plan of the employer) will be considered to have offered the same pension plan, unless explicitly agreed on otherwise with the employer.

Furthermore, various forms of legislation on equal treatment (e.g., based on age, gender, full-time/part-time work, temporary/indefinite labor contracts), existing collective labor agreements, or some specific merger and acquisition situations might also lead to pension obligations for the employer.

2.

Administering second-tier pensions

Second-tier pensions, by law, are administered by industry-wide pension funds, company pension funds or by insurance companies.

The following options apply: •

Joining an industry-wide pension fund (this might be mandatory);

•

Setting up a company pension plan through self-administered funds approved by the Ministry of Social Affairs and supervised by the Dutch National Bank (DNB) and the Authority Financial Markets (AFM); and

•

Insuring employees with a life insurance company, licensed by the Dutch Supervisory Authorities.

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As an alternative to an industry-wide pension fund or a company pension fund, pension plans may be fully insured by a life insurance company that is licensed in accordance with the Dutch Pension Act under the supervision of the Dutch National Bank. Insuring a pension plan by such a life insurance company can be executed by means of a pension insurance agreement between the employer and an insurance company (formerly known as “B-policy”).

Contrary to the former Pension and Savings Fund Act, the Pension Act as of January 2007 no longer allows new initiated individual pension insurance agreements between an insurance company and an employee (formerly known as “C-Policy”). In other words: only the employer can enter into a pension insurance agreement (in favor of its employees) but not the employee itself.

3.

Several ways to finance second-tier pension benefits

There are several ways in which pension benefits can be financed.

These are as follows: •

a defined benefit (DB) system that can be formed as a final pay system or as an average pay system, or

•

a defined contribution (DC) system, either individual or collective.

4.

Final Pay System

Under the Final Pay System, the pension accrued is a fixed percentage of the pensionable base (pensionable salary minus franchise) applicable in the initial year as of the commencement date of service or the commencement date of the pension plan. With regard to future increases of the pensionable salary, pension claims are allocated to the previous years of service from the commencement date of employment or of the plan (past services). Therefore, the amount of the old-age pension depends on the employee’s last salary prior to the pension date, the years of participation in the pension plan and the franchise.

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5.

Moderate Final Pay System

To prevent a situation in which salary increases at a later age will lead to major pension cost increases, the final pay system often includes provisions to limit the costs. A frequent provision stipulates that the pensionable salary after a certain age (55 or 60 years) will be taken into account only with respect to future years of service. Alternatively, it may be determined that promotions after the employee reaches a certain age (55 or 60 years) no longer count for pension increases, but only the usual periodic salary increases. Employers have to be aware that these kinds of stipulations might be in conflict with Dutch equal treatment law.

6.

Average Pay System

In this system, the pension accrual is a fixed percentage of the pensionable base in the first year as of the commencement date of employment or the commencement date of the plan. Upon each consecutive increase of the pensionable base, a pension is accrued only for years of service yet to come. In this way, the pension to be distributed on the pension date is calculated on the average of all pensionable bases over the entire period of participation in the plan.

7.

DC system

Under a DC system, it is not the final pension that is the standard, but the offered premium that form the basis of the pension commitment.

Thus, rather than a pension commitment, a premium commitment is involved.

8.

CDC system

As of 2005, International Financial Reporting Standards (IFRS) for companies quoted on the stock exchange has led companies to reconsider their existing DB pension plans. The Project Unit Credit (PUC) method based on IFRS used, leads to high pension liabilities in the company books due to the fact that this method takes into account discount rates, salary increases, periods of service, inflation, and other actuarial factors.

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Although most of the companies affected by IFRS do not wish to be confronted with the high liabilities in the company books, most of them do wish to keep the advantages of the DB System. The combination of the two leads to the so-called CDC system. A CDC pension plan, based on the Average Pay System, might show the following aspects: •

The employer pays on a yearly base (within a few years), a prefixed pension premium;

•

Extra risk insurance is already included in the pension premium;

•

The pension fund will use the DB system to divide the pension accrual, making the yearly pension accrual flexible;

•

The basic assumption will be that the premium should provide for the expected pension. However, if there is a mismatch in expectations and in the final result, the employees will collectively carry the actuarial/investment risks and benefits; and

•

Indexation might be paid by extra interest profits.

The Dutch National Bank (DNB), however, is very critical on the so called CDC pension plans and interprets some of these plans as a DB plan. The interpretation of the DNB has a direct effect on the way the pension plan has to comply with specific pension provisions. For IFRS purposes the pension plan system will be interpreted by the specific accountant. If the CDC pension plan will not be interpreted as a DC plan, this may imply a considerable risk for the employer.

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XI.

Visas, Residence Permits, and Work Permits for Non-EU Nationals

A.

Visit to the Netherlands Not Exceeding Three Months

Many foreign nationals do not require a tourist or a business visa to enter the Netherlands if their stay will not exceed three months. It is advisable to check with the Dutch Embassy or Consulate whether a visa is required.

If a visa is required for business reasons, a foreign employee must be cautious about assuming too readily that his/her activities may be considered â&#x20AC;&#x153;business.â&#x20AC;? In general, one can say that visas are required for those whose activities will be undertaken on an incidental basis. In this respect, attending meetings and participating in discussions are applicable to a business person. These business activities may take place for a maximum of four weeks within 13 weeks.

Furthermore, a work permit is not required for those foreign employees who will be in the Netherlands to install, adapt and provide instructions on the use of software, produced and supplied by the employer established outside the Netherlands. These specific working activities may be performed for a maximum of 12 consecutive weeks within 36 weeks. For all other activities, a work permit is required.

It is also possible to apply for a multiple-entry visa. This multipleentry visa allows foreign nationals to enter the Schengen area for three months within six months. Consequently, as soon as the three-month period (90 days) has expired, a foreign national may not enter the Schengen countries again until the expiration date of the Schengen visa. Of course, once the expiration date has lapsed, it is possible to apply again for a Schengen visa.

Member States of the Schengen Area are: Austria, Belgium, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Iceland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Baker & McKenzie

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Norway, Poland, Portugal, Spain, Slovakia, Slovenia, Sweden and Switzerland.

B.

Visit to the Netherlands Exceeding Three Months

A foreign national intending to remain in the Netherlands for more than three months must apply for a residence permit. The conditions for obtaining a residence permit depend entirely on the purpose of coming to the Netherlands. (In this chapter, a residence permit for the purpose of work will be discussed.)

A foreign national intending to work and reside in the Netherlands must, usually, obtain three types of documents: 1.

A temporary residence permit (Machtiging tot Voorlopig Verblijf or â&#x20AC;&#x153;MVVâ&#x20AC;?), which enables the holder to enter the Netherlands. Please note that an MVV is not required for citizens of the European Economic Area, the European Union and Switzerland, Japan, Canada, Australia, Monaco, and New Zealand.

2.

A residence permit, which enables the holder to live in the Netherlands; and

3.

Under certain conditions, a work permit, which enables the holder to work in the Netherlands.

There are two different procedures for applying for an MVV: (i)

The foreign national can apply in the country where he/she lives; or

(ii)

The employer in the Netherlands or the person with whom the foreign national will be staying in the Netherlands can apply on his/her behalf.

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Depending on the purposes of stay, obtaining an MVV can take between two weeks and six months. For employment purposes, and if the Dutch employer applies by means of the expedited procedure, the MVV will usually be granted within two to three weeks. Please note that during the MVV procedure, a foreign national is not allowed to enter or reside in the Netherlands.

C.

Residence permit

A foreign national who intends to stay in the Netherlands for more than three months and who has gained entry into the Netherlands is required to obtain a residence permit (verblijfsvergunning). Please note that a residence permit will not be granted if the foreign national was first required to obtain an MVV. The residence permit is generally issued for a maximum of one year and if no changes of circumstances have occurred, it is extendible on a yearly basis. After having been in possession of a residence permit for five years, the foreign national may apply for a permanent residence permit. This permanent residence permit is renewable every five years.

D.

Work permit

An employer who wants to recruit an employee from outside the EU/EEA usually needs to apply for a work permit for that employee.

For completenessâ&#x20AC;&#x2122; sake, please note that the Netherlands has (temporarily) opted out for the full mobility of the workforce in respect of Romania and Bulgaria. In this respect, for Romanian and Bulgarian nationals, work permits are required. Dutch Parliament is discussing when the work permit requirement for Romanian and Bulgarian nationals will be abolished. At the moment, the majority argue for the obligated abolishment by January 2012.

There are different procedures for applying for a work permit. The applicable procedure depends entirely on the applicantâ&#x20AC;&#x2122;s specific circumstances and the nature of the company he/she is being posted Baker & McKenzie

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from and the nature of the company where he/she will be working in the Netherlands.

Generally, the Dutch employer must prove that the labor market has been scanned for workers who have priority. In this respect, the employer must prove that the vacancy has been reported to the Dutch UWV WERKbedrijf and, usually, to the European Employment Service (EURES) for at least five weeks prior to the work permit application. Furthermore, the employer is required to advertise the job in a Dutch national newspaper, a professional journal, and must have engaged a recruitment office.

If a company is unsure whether it is subject to the said reporting obligation, the company is advised to consult our office in advance. In order to avoid unexpected refusals, companies should be cautious about assuming that a job does not need to be reported to various authorities. Please note that application procedures for different types of employment require extensive preparation. This is necessary not only for the application as described above, but also for those who want to stay in the Netherlands as self-employed individuals, or for those who want to work in a university, in the field of sports, or elsewhere.

Several exceptions, such as the intra-company transfer and trainee applications, exist. For this reason, it is advisable to contact our office.

E.

Knowledge Migrant Workers

Skilled and highly educated foreign workers do not require work permits to work in the Netherlands. This regulation is applicable to those who hail from Romania and Bulgaria and those countries which are not members of the European Economic Area.

As of 1 January 2009, a knowledge migrant worker is one employed in the Netherlands and receives an annual salary of at least EUR 49,087 (from the age of 30 onwards) or EUR 35,997 (up to and including the age of 29). As of 1 January 2010, and in accordance 82

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with market price movements, this salary level condition will be raised. Unfortunately, it is not clear at the moment by how much.

An important requirement for admission as a knowledge migrant worker is that the future employer has a contract with the IND. For completenessâ&#x20AC;&#x2122; sake, please note that the IND will sign the contract only with an established legal entity in the Netherlands where the knowledge migrant worker will be employed. Consequently, no contracts will be signed with entities established in a foreign country.

Knowledge migrant workers will not be covered by the Dutch Foreign Employment Act but are expected to comply with the rules of the Immigration and Naturalization Service (IND). The knowledge migrant worker must therefore apply for the required residence permit and the IND will decide whether to grant the residence permit. This decision will be taken within a short period (approximately two to three weeks) assuming that the IND receives a complete application.

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XII.

Personal Income Tax

A.

General

In the Netherlands, private individuals are subject to personal income tax. Every individual who lives in the Netherlands (i.e., a resident) is subject to taxation on his or her worldwide income. An individual who does not live in the Netherlands (i.e., a non-resident) is subject to taxation only on certain income from a Dutch source, as stipulated by law. Examples include income obtained from a Dutch business operated by a branch in the Netherlands, income obtained from Dutch real estate, directors’ fees, income from employment in the Netherlands, and benefits from a substantial interest (aanmerkelijk belang) in a company located in the Netherlands. However, a nonresident may opt to be treated as a resident taxpayer for personal income tax purposes, provided that the individual is a resident of the EU or of a country that has signed a double taxation treaty with the Netherlands containing a provision on the exchange of information.

Please note that some articles are excluded by law for non-residents who have obtained a resident status. Dutch tax authorities (Belastingdienst) may wish to tax recipients of Dutch source income, but whether Dutch tax authorities may actually do so depends on the provisions set out in a tax treaty for the avoidance of double taxation in many cases. A tax treaty will be applicable only if the recipient of Dutch source income is a resident of one of the treaty countries.

B.

2001 Personal Income Tax Act

The 2001 Personal Income Tax Act distinguishes three types of income that are subject to personal income tax and classifies them under “Box I,” “Box II,” and “Box III.” •

Box I income includes profits, employment income, income from other activities, and income deemed to have been generated from residential home ownership.

•

Box II income includes income from shares in case of substantial interest of 5% or more.

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•

Box III income includes income from savings and investments.

Each box has its own rules for determining the tax base and its own tax rate.

Income in Box I is taxed at a progressive rate with a maximum of 52%. Income in Box II is taxed at a flat rate of 25%, and income in Box III is taxed at a flat rate of 30%. Box III income is set at a fixed notional yield of 4% of the taxpayer’s average equity. There are impermeable “walls” between the three boxes: losses that the taxpayer incurs in Box I may be set off, i.e., carried backward or forward, against Box I income only, and the same applies to losses in Box II. The taxable income in Box III is calculated at 4% of the fair market value of the taxpayer’s property, minus the amount of the taxpayer’s outstanding debts and a basic allowance of EUR 20,661 (for 2010). In other words, the tax burden on savings and investments that fall within the scope of Box III, minus debts and basic allowance, is 1.2% (4% of income x 30% tax rate).

C.

Business Profits in Income Tax

In general, this is the taxation for entrepreneurs who are gaining profit in a one-man business or a small company without limited liability.

The total profit minus the relevant entrepreneur’s deductions and the tax deduction for small- and medium-sized businesses is the basis of taxation. In the Netherlands, there has been a long tradition of government support for entrepreneurship. In the year that the entrepreneur starts his or her activities, he or she may claim a tax reduction (zelfstandigen aftrek voor starters) of EUR 2,070 (for 2010). Furthermore, the tax exemption for small- and medium-sized businesses is stretched up to 12% of the total business profits minus the entrepreneur’s deductions in each year.

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D.

Income from Employment

1.

Managing and Supervisory Directors

In general, remuneration received by managing directors and supervisory directors of companies located in the Netherlands is subject to income tax even if they are non-residents and perform their activities outside the Netherlands. The company paying the remuneration must withhold wage tax and social security contributions, if any (as a pre-levy on income tax), from payments made to the directors.

2.

Other Employees

Employment income earned by Dutch resident employees is fully subject to personal income tax. Employees who are residents of a nontreaty country are subject to Dutch income tax on their employment income to the extent that the employment is deemed being performed within the Netherlands. Those who are residents of a treaty country but work in the Netherlands are also subject to Dutch tax. In general, based on international tax treaties (if applicable), employment income is taxed in the country where the employment activities are performed.

However, employment income is taxable in the country of residence if: â&#x20AC;˘

the employee spends less than 183 days per calendar year (or per any 12-month period, depending on the applicable tax treaty) in the working country;

â&#x20AC;˘

the remuneration is not paid by an employer in that working country; and

â&#x20AC;˘

the remuneration is not charged to a branch of the employer in that working country.

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E.

Income Tax Ruling

Dutch tax authorities grant special tax benefits to foreign employees who are temporarily assigned to a Dutch subsidiary or branch abroad, i.e., employees who are residents of the Netherlands. Under the socalled 30% ruling, 30% of the employee’s salary may be paid out as tax-free compensation for costs and the employee may, at his or her request, benefit from treatment as a non-resident for tax purposes.

Consequently, he or she will not be taxed on passive income, such as interest. Please note that in general, an addendum to the employment contract must be drafted, stipulating the application of the 30% ruling in respect of the agreed-on wages.

The main conditions attached to the 30% ruling pertain to: •

the employee’s professional position;

•

the employee’s prior employment or stay in the Netherlands; and

•

the status of the employer.

1.

The Employee’s Professional Position

There are two conditions with regard to the employee’s professional position: •

An employee assigned to the Netherlands (or hired from abroad by a Dutch company or branch) must have a specific expertise. The specific expertise requirement should be understood in a broad sense. As a rule, top-level managers of international groups, scientists, teachers at international schools, and personnel assigned to a job-rotation plan may be deemed compliant with this requirement (provided that, in the case of the last category, they have more than 2.5 years of experience with the company).

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•

The specific expertise must be scarce or unavailable on the Dutch labor market. The employment contract does not necessarily have to be performed in the Netherlands; the 30% ruling also applies to income earned in relation to employment performed outside the Netherlands, provided that such income is taxable in the Netherlands on the basis of Dutch tax law or under a tax treaty. This may be particularly relevant to directors’ fees.

2.

The Employee’s Prior Employment or Stay in the Netherlands

The period during which the 30% ruling may apply is reduced by the amount of time the employee spent working or living in the Netherlands in the last 15 years. However, this is not the case if the employee left the Netherlands for more than 10 years prior to returning and has not worked in the Netherlands in the last 10 years.

The 30% ruling is granted for a maximum period of 10 years. The 10year period commences on the first day of employment or prior to arrival in the Netherlands.

3.

Status of the Employer

In order to apply for the 30% ruling, the employer is obliged to withhold wage tax in the Netherlands. Moreover, the employer and employee should file a joint application request with the Tax Inspector in Heerlen (the Netherlands). Standard application forms are available for this purpose. In principle, there is no time frame for the filing of the request, but the application would be retroactive to the date on which employment in the Netherlands commenced only if it is filed within four months after that commencement date. If that period has expired, the 30% ruling would take effect on the first day of the month following the month in which the application form was filed. If the 30% ruling is not granted, it is possible to file an objection to the tax inspector’s decision within six weeks.

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F.

Levy of Taxes

Dutch personal income tax is levied by a personal income tax assessment based on a tax return submitted to Dutch tax authorities.

Taxpayers usually receive a tax return automatically, which they must then file before April 1 of the following calendar year. An extension of this period may be obtained by request. Wage tax, Dutch dividend tax, or foreign withholding tax already paid on personal income for the taxable year will be set off against the personal income tax due.

On balance, this may result in a refund or a payment of personal income tax. Non-residents are not eligible for personal deductions, e.g., for alimony payments or losses incurred for venture capital investments. The only exception is the deduction for mortgage interest paid on a house located in the Netherlands. Labor costs are deductible by means of a â&#x20AC;&#x153;labor tax creditâ&#x20AC;? for both resident and non-resident taxpayers.

G.

Income Tax Rates

1.

General Tax Credit

The general tax credit is not specifically related to one of the boxes and is set off against the combined amount of tax due in respect of Boxes I, II, and III income. Some specific expenses that are not related to one of the boxes, e.g., some personal obligations or exceptional expenses, are deducted by means of a reduction on Boxes I, II, or III income. The general tax credit is EUR 1,987 for individuals up to the age of 61.

Starting January 1, 2009, the legislator has introduced a new tax credit (doorwerkbonus) particularly to stimulate older people to continue with their employment activities. The amount of the tax credit depends on the age of the employee and the level of his or her income.

For each age between 61 and 67 years, a different percentage is applied. The basis of the credit is the taxable income ranging from EUR 8,860 to EUR 45,916.

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Tax credit for older individuals Age

61

62

63

64

65 66 and older

Percentage (%)

5

7

10

2

2

Maximum credit

1,853 2,594 3,706 741 741

1 371

2.

Personal Income Tax Rates

â&#x20AC;˘

The following tax and national insurance rates will apply in 2010 for individuals up to the age of 65 and residing in the Netherlands.

The rate in the first bracket (33.45%) consists of 2.30% for income tax and 31.15% for national insurance contributions. The rate in the second bracket (41.95%) consists of 10.80% for income tax and 31.15% for national insurance contributions. The rates in the third and fourth brackets consist only of income tax.

Tax and premium rate

Taxable income

33.45%

up to EUR 18,218

41.95%

EUR 18,218 up to EUR 32,738

41.95%

EUR 32,738 up to EUR 54,367

52%

In excess of EUR 54,367

â&#x20AC;˘

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The following tax and national insurance rates will apply in 2010 for individuals aged 65 years or older and residing in the Netherlands. The rate in the first bracket (15.55%) consists of 2.30% for income tax and 13.25% for social security contributions. The rate in the second bracket (24.05%) consists of 10.80% for income tax and 13.25% for social security contributions. The rates in the third and fourth brackets consist only of income tax.

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Tax and premium rate

Taxable income

15.55%

up to EUR 18,218

24.05%

EUR 18,218 up to EUR 32,738

42%

EUR 32,738 up to EUR 54,367

52%

In excess of EUR 54,367

3.

Special Rates

There are no special tax rates in the Personal Income Tax Act.

H.

Substantial Interest

Generally, an individual has a substantial interest if he or she, alone or together with his or her partner (spouse or registered partner), directly or indirectly: •

owns 5% or more of the nominal paid-in capital of a company;

•

has the right to acquire 5% or more of the nominal paid-in capital of a company; and/or

•

has a profit-sharing note entitling him, her, or them to 5% or more of the annual profits or liquidation revenue.

If an individual holds less than 5% of the subscribed capital of a company, he or she may nevertheless have a substantial interest if certain relatives also hold a substantial interest in that capital. If an individual holds a substantial interest, all of his or her other holdings in the company, including stock options, claims, and other forms of profit participation, will qualify as substantial interest and will be taxed as such in Box II. An individual who owns a substantial interest is taxed on all of the benefits derived from that holding, including periodic benefits, such as dividends and capital gains received upon the disposal of shares in the Baker & McKenzie

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company, at the rate of 25%. A capital gain or loss consists of the transfer price minus the acquisition price. A capital loss from a subscribed capital may be deducted only from income from substantial interests in Box II. Notwithstanding the above, if the individual places an asset at a companyâ&#x20AC;&#x2122;s disposal while that individual has a substantial interest in that same company, the income from the asset will be subject to personal income tax at the progressive rates for Box I. Similarly, assets placed at a partnershipâ&#x20AC;&#x2122;s disposal will be subject to personal income tax at the progressive rates. The net income from option rights in the company in which the individual holds a substantial interest will also be taxed at the progressive rates for Box I. 1.

Fictitious Salary

An employee or a manager who works in a company in which he or she has a substantial interest has to take a fictitious salary into account, which will be taxed in Box I. The salary earned in a calendar year is, in principle, at least EUR 40,000 per employment contract. As a result, an employee with a substantial interest has to earn at least the fixed amount of EUR 40,000, which is treated as taxable income.

However, the fictitious salary may be higher or lower, depending on the specific circumstances of employment. The company has to pay wage tax over this fictitious salary. The wage tax is a deductible salary cost item for corporate income tax purposes.

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XIII. Corporate Income Tax The Corporate Income Tax Act of 1969 (Wet op de vennootschapsbelasting 1969) distinguishes between resident and non-resident taxpayers. Dutch subsidiaries of foreign companies are regarded as resident taxpayers, while Dutch branches of foreign companies are regarded as non-resident taxpayers. As from 2007 and onwards, the Corporate Income Tax Act was amended more than once with respect to the corporate income tax rate, the participation exemption regime, the domestic dividend withholding tax rates, the rules on interest and cost deductions, and the availability of tax losses.

A.

Subsidiaries

Subsidiaries are subject to corporate income tax on their entire worldwide income. Certain statutory exemptions do exist, however.

1.

Tax rate

Subsidiaries are taxed at a flat corporate income tax rate of 25.5% for profits exceeding EUR 200,000. Profits up to EUR 200,000 are being taxed at 20% in 2009 and 2010, which is a temporary rule for these years only. As from 2011, profits up to EUR 40,000 will be taxed at 20% and profits between EUR 40,001 and EUR 200,000 will be taxed against 23% again.

2.

Residency

A company incorporated under the laws of the Netherlands is deemed a resident of the Netherlands for corporate income tax purposes.

However, for certain corporate income tax facilities, the residency of a company is not determined by its incorporation under the laws of the Netherlands. These facilities include merger and demerger facilities and the application of the fiscal unity regime. For these particular tax facilities and in the case of a company incorporated under foreign law, the place of residence for Dutch corporate income tax purposes will be determined by factual circumstances whereby the seat of central management of the company is of crucial importance.

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3.

Computation of Taxable Profits

The Dutch Corporate Income Tax Act of 1969 does not prescribe a specific method for computing annual taxable profits. It only requires that the annual profits be determined in accordance with sound business practices and in a consistent manner from year to year, regardless of the probable outcome. A modification of the method used is allowed only if it is justified by sound business practices.

“Sound business practice” is not defined by law. The Supreme Court has held that a system of computation is in compliance with sound business practice if it is based on generally accepted accounting principles concerning the proper method of determining profits. A system of computation is deemed not in compliance with sound business practice only if its application is found incompatible with explicit statutory provisions.

Dutch companies may, upon prior request and subject to certain conditions, calculate their taxable income in the functional currency of the group of which they are a part. This way, currency exchange risks can be eliminated.

Since the Corporate Income Tax Act of 1969 does not contain any schedules relating to the depreciation of capital assets, valuation of inventory, capitalization, amortization of cost, and so forth, there is considerable freedom in adopting a suitable system as long as it is in accordance with sound business practice. Dividend distributions by a Dutch company are subject to a 15% withholding tax rate, which may be reduced to a lower percentage, or even to zero, by virtue of a tax treaty or EU regulations. See Section 20 and Appendix V. 4.

The Arm’s Length Principle

The arm’s length principle is codified in Article 8b of the Corporate Income Tax Act of 1969. Accordingly, entities must document the information based on which the transfer prices between the associated enterprises have been agreed upon. Given the legislative history of the Netherlands, tax authorities will provide the taxpayer with a 94

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reasonable term to prepare the required information and incorporate this in its administration.

5.

Group Interest Box

The 2007 CIT Reform proposed an optional separate tax regime for income derived from group finance activities. The mechanism of this so-called “Group Interest Box” provided that the balance of taxable interest received and interest paid in respect of loans to and from related companies will be taxed (separately from the general taxable base) at the effective rate of 5%. In order to apply the regime, a Dutch corporate taxpayer and all related companies that are subject to Dutch corporate income tax must make a joint election.

Since the optional regime would probably not have been accepted by the European Commission, due to the non-compatibility of the Group Interest Box with the EU rules on state aid, the Ministry of Finance published a “consultation” document in June 2009 with a compulsory Group Interest Box as an alternative to the 2006 optional Group Interest Box. In this document, various proposals on the participation exemption and restrictions on interest deductions were also published.

This consultation document has not yet led to a legislative proposal in the 2010 Budget related to the Group Interest Box and the restrictions on interest deductions. A legislative proposal on these items is not expected before the end of 2009 and is therefore not expected to enter into force (if at all) before 2011.

The main difference between the 2006 and 2009 Group Interest Box is that the 2009 Group Interest Box is compulsory for all entities subject to corporate income tax in the Netherlands. The European Commission has therefore already concluded that the 2009 Group Interest Box regime does not constitute state aid as it would apply equally to all Dutch tax resident companies receiving interest from related companies.

The following items of income (and expenses) are included in the Group Interest Box: Baker & McKenzie

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•

Interest and costs in connection with loan receivables from group companies, including foreign exchange results and the results and costs of any instruments that hedge foreign exchange or interest rate exposures

•

Income and costs relating to short-term portfolio investments, to the extent these are held with the objective of acquiring a participation that might qualify for the participation exemption

•

Interest and costs in connection with loans payable to group companies including foreign exchange results and the income and costs of any instruments that hedge foreign exchange or interest rate exposures

•

Any fluctuations in value of the above-mentioned loans or short-term portfolio investments.

Loans For the purpose of the 2009 Group Interest Box, loan receivables and payables include agreements that are economically comparable to a loan such as financial lease and hire-purchase agreements (the buying of goods on credit terms). Accordingly, the interest component of financial lease payments is also included in the Group Interest Box. Hybrid loans (subordinated, profit-dependent interest and a maturity of more than 50 years) are also brought into the scope of the Group Interest Box. These loans can now qualify as an exempt benefit under the participation exemption provided that the creditor holds a qualifying shareholding in the creditor (participation exemption).

Group The definition of group for the application of the 2009 Group Interest Box regime was broadened and now includes a reference to the term control as used in IAS 27 (the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its 96

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activities). Related companies (part of a group) are companies that are controlled by the taxpayer, that control the taxpayer and a company that is controlled by a party that also controls the taxpayer.

Anti-abuse The proposal includes an anti-abuse provision aimed against the conversion of ordinary business profits into low taxed Group Interest Box income by way of an artificial creation of intercompany receivables by a transfer of assets to a (foreign) group company for debt. This artificial creation of intercompany receivables by the transfer of assets to a (foreign) group company for debt results in the income not falling in the scope of the Group Interest Box unless the taxpayer demonstrates that the transaction was business motivated.

6.

Patent Box

The 2007 CIT Reform has introduced an optional separate tax regime for income derived from the exploitation of Dutch registered patents in order to create a more attractive environment for R&D activities in the Netherlands. This regime is referred to as the “Patent Box.” The income from a patent for purposes of the Patent Box is defined as benefits minus related R&D expenses, other charges, and amortization of the Intellectual Property.

By eliminating part of the income from patents from the taxable base, such income will effectively be taxed at a rate of 10%. The application of the Patent Box regime is fully optional and applies only to patents that were first registered on or after 1 January 2007. The Patent Box received the “no-state aid” declaration from the European Commission and has been effective starting 1 January 2007.

The 2010 Budget provides for important improvements and further rate reduction in the Patent Box. The scope of the optional regime for income from research and development is significantly widened and the effective tax rate is further reduced from 10% to 5%. The widening of the scope is achieved by eliminating the maximum of the Baker & McKenzie

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benefits under this regime. Currently the maximum is four times the amount invested into research and development. From 2010 onwards there will be no limits to the benefits that can be obtained under this regime. Any income that is attributable to qualifying research and development activities will be taxed at only 5%. Another important change relates to the requirement that a patent must have been granted before the tax benefits can actually be claimed. This requirement is now significantly relaxed. As a consequence the patent box regime will now also come within reach of companies that do not intend to apply for patents for the products of their research and development efforts or that develop products that are not patentable, such as software.

7.

Dividend Withholding Tax

The Dutch domestic dividend withholding tax rate is 15%, which may be lowered by the application of tax treaties and the EU ParentSubsidiary Directive. Furthermore, no dividend withholding tax is levied on dividend distributions of companies residing in the EU that have a minimum shareholding of 5% in the nominal contributed share capital of the Dutch entity, to the extent that the EU shareholder has one of the legal forms as set forth in the appendix of the EU ParentSubsidiary Directive.

Finally, dividend withholding tax is refunded to companies residing in the EU which are exempt from corporate income tax (such as pension funds) if the exemption is also allowed under Dutch domestic rules.

B.

Branches

Dutch branches of non-resident companies are regarded as nonresident taxpayers for corporate income tax purposes.

1.

Domestic Source Income

Non-resident taxpayers are subject to corporate income tax only on their domestic source income. For practical purposes, the main domestic sources of income are: 98

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•

profits derived from any business carried out in the Netherlands by means of a Branch or a Permanent Representative;

•

income from a substantial shareholding in a resident company as defined in Chapter 4 of the Individual Income Tax Law of 2001 (“Wet Inkomstenbelasting 2001”), i.e., at least 5%, provided that the shares are not considered business assets; and

•

net income from immovable property located in the Netherlands.

Domestic sources do not include royalties paid by domestic licensees; neither do domestic sources include interest payments paid by Dutch branches.

2.

Branch Profit Remittances

Branch profit remittances are not subject to withholding tax. The nonresident company is regarded as the taxpayer, not the Dutch branch of the company.

3.

Computation of Taxable Profits

The Corporate Income Tax Act of 1969 does not contain any provisions on how taxable profits should be attributed to a Dutch branch of a non-resident company.

In practice, the following principles govern the attribution: •

The branch is considered an independent entity for corporate income tax purposes.

•

Intercompany transactions must be carried out on an arm’s length basis.

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Since the allocation of profits is difficult, the Dutch tax authorities are generally willing to enter into agreements with taxpayers on the determination of the taxable profits of the branch (an “Advance Pricing Agreement”) based on an arm’s length allocation of income.

These agreements are confirmed in writing in the form of APAs and are strictly observed by the Dutch tax authorities.

4.

Method of Taxation and Tax Rate

The determination of domestic source income is basically the same for branches and subsidiaries. The branch is subject to corporate income tax at the same rate as the subsidiary, i.e., 25.5% for profits exceeding EUR 200,000. Profits up to EUR 200,000 are being taxed at 20% in 2009 and 2010, which is a temporary rule for these years only. As from 2011, profits up to EUR 40,000 will be taxed at 20% and profits between EUR 40,001 and EUR 200,000 will be taxed against 23% again.

5.

Foreign Branch Profits

Profits earned by foreign branches of a Dutch resident company are exempt from Dutch corporate income tax if the branch is subject to foreign tax, regardless of the rate. Foreign losses are deductible from domestic taxable profits. However, future profits are, in principle, set off by such losses for the purpose of applying the foreign corporate income tax exemption.

C.

Branch versus Subsidiary

As indicated above, branches and subsidiaries are taxed virtually on the same basis.

The main differences are described below: 1.

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Most tax treaties provide that certain auxiliary activities carried out in the Netherlands do not constitute a branch for corporate income tax purposes and, as a result, do not incur

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Dutch taxation. This exception does not apply to Dutch subsidiaries.

2.

The profit from a Dutch branch may be transferred to its headquarters free from any withholding tax. Dividends paid to a foreign parent company are, however, subject to Dutch dividend withholding tax at the ordinary rate of 15% (reduced to a lower percentage, or even to zero, by virtue of a tax treaty or EU regulations).

3.

Interest paid by a subsidiary on loans and royalties is, in general, tax deductible if it is at armâ&#x20AC;&#x2122;s length (however, see Section 6). Internal interest and royalty payments are not taken into account between a branch and its headquarters.

D.

Participation Exemptions

1.

Basic Rule

Under the participation exemption regime, dividends received from a qualifying subsidiary and capital gains realized on the disposal of shares in such a subsidiary are exempt from Dutch corporate income tax. The participation exemption includes amendments to the sale or acquisition price of a qualifying participating interest as well as changes in the value of a right to instalments of the sale or acquisition price of a participating interest where the number and amount of instalments were not fixed in the year of sale or acquisition. The participation exemption may also apply to results on financial instruments (including loans) covering currency exchange risks with respect to foreign participating interests, provided that a ruling is obtained in advance from the Dutch tax authorities. Historically, the participation exemption regime resulted in the establishment of thousands of holding companies in the Netherlands.

Up to 31 December 2006, the participation exemption was applicable if the Dutch parent company held at least 5% of the nominal paid-up share capital of a subsidiary and the shares were not held as inventory.

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requirements, i.e., that the subsidiary is subject to tax and that the subsidiary is not merely held as a portfolio investment.

2.

2007 CIT Reform: Amendments to the Requirements

As of 1 January 2007, the participation exemption regime was simplified and was made more “competitive” and compatible with EU rules. The former requirements were replaced with a simple rule, pursuant to which the participation exemption would apply to any participation of at least 5% in domestic and/or foreign subsidiaries or entities, unless such an investment is considered as both a Passive Investment (pursuant to an asset test on a consolidated basis) and subject to less than 10% taxation on a stand-alone basis. Pursuant to the 2007 rules, an investment qualifies as Passive Investment subject to less than 10% taxation if: (a)

the assets of the subsidiary/entity directly or indirectly consist of more than 50% of “free” portfolio investments5; and

(b)

the subsidiary is not subject to tax on profits, which results in a tax levy of at least 10% on profits, recalculated according to Dutch tax standards (and without taking into account loss carry forward, double tax, or group reliefs). In sum, the revised participation exemption applies to any shareholding of at least 5% in both (i) active companies (regardless of the level of taxation) and (ii) Passive Investments that are subject to an effective tax rate of 10% or more.

On the other hand, income derived from Passive Investments that are subject to an effective tax rate of less than 10% is taxed at the standard corporate income tax rate of 25.5%. However, a tax credit applies to such income, which is set at 5% of the gross benefits derived from the 5

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“Free portfolio investments” are defined as portfolio that is not reasonably necessary for the business activities of the company holding the portfolio investments. This definition includes intra-group financing, leasing, and licensing activities, unless such activities qualify as ‘active’ pursuant to detailed safe-harbor rules.

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Passive Investment (i.e., capital gains/losses and dividends). If the Passive Investment itself is not taxed at all, no credit is granted.

Pursuant to the EU Parent-Subsidiary Directive, when the Passive Investment is located within the EU and certain other conditions are met, the taxpayer may opt for a credit that matches the actual underlying tax paid.

In addition to the foregoing, the 2007 participation exemption regime included the following features. Real estate investment subsidiaries will always be granted participation exemption, provided that 90% of their assets consist of real estate. Generally, no exemption is available in cases where the minimum shareholding requirement of 5% is not met. However, the participation exemption will apply if another affiliate company (whether a resident of the Netherlands or elsewhere) has a shareholding of 5% or more in the same subsidiary. Where the Netherlands taxpayer owned, as of 31 December 2006, an interest in a subsidiary of less than 5% and was thus granted participation exemption on the basis of the old legislation, the participation exemption would remain available for three more years for this participation. Furthermore, profit participation rights and hybrid instruments as described in Section 6, letter b, could benefit from the participation exemption regime if the creditor has a qualifying investment in the debtor.

As from 2010, the rules will slightly change, according to the 2010 Budget. As from 1 January 2010, the participation exemption regime will apply to subsidiaries in which a 5% interest is held, unless such participation is considered held as a portfolio investment. Whether a subsidiary is held as a mere portfolio investment depends on the taxpayerâ&#x20AC;&#x2122;s aim, i.e., the purpose with which the taxpayer holds the participation. This subjective criterion will provide more room for Dutch tax inspectors, as compared to the current situation, to grant tax rulings with respect to the application of the participation exemption.

However, if this subjective criterion is not met (i.e., the participation can be regarded held as a portfolio investment), the participation

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exemption will still apply if the so-called taxation test and/or the asset test is met. These tests will be relaxed and simplified starting 2010: â&#x20AC;˘

The taxation test will be met if the participation is subject to a profit tax with a general statutory tax rate of at least 10% in its state of residence. Although this taxation test requires a comparison of the foreign tax regime with the Dutch tax regime, which may be burdensome in practice, fortunately the proposed taxation test is more relaxed as compared to the test in the 2007 participation exemption regime.

â&#x20AC;˘

The asset test will be met if the assets of the participation consist of less than 50% of low taxed passive investments.

Low taxed passive investments are assets which do not have a function within the scope of the business operations of the participation and of which the income is not subject to a tax burden of at least 10%. In case the participation holds subsidiaries, the asset test is performed on a consolidated basis. Such consolidated asset test can be performed by using a consolidated financial balance sheet which is relatively easy in practice as compared to the current approach, where extensive recalculations are often required under the 2007 regime.

3.

Expenses Incurred in Relation to Participating Interests

Apart from certain provisions limiting the deduction of interest expenses (as indicated in Paragraph 6 below), as a general rule, all expenses incurred in connection with a subsidiary qualifying for the participation exemption are deductible. Expenses related to the acquisition of a subsidiary to which the participation exemption applies are added to the cost price of the subsidiary and are therefore not effectively tax deductible. Expenses incurred in connection with the disposal of a qualifying subsidiary are, as of 1 January 2007, no longer deductible. Currency losses realized on loans that are used to fund participations must be recognized as soon as they are incurred, whereas currency gain will normally be taxable upon redemption of 104

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the loan. For companies that fund foreign participating interests with loans denominated in currencies other than the Euro, it is particularly important to check whether it is possible to avoid exposure to currency exchange risks by applying fiscal accounting in the functional currency.

4.

Capital Losses under the Participation Exemption

As a general rule, capital losses and a decline in value of the shares in a qualifying participating interest are not deductible. However, pursuant to complex anti-abuse rules (which are not discussed exhaustively here), such a general rule is subject to the following exception. Losses incurred on a completed liquidation of a subsidiary are deductible. Generally, the deductible amount is equal to the difference between the funds invested and the liquidation proceeds.

This amount will be reduced by dividend payments made in the previous five (or sometimes 10) years. Liquidation losses may not be deducted if the activities of the liquidated subsidiary are continued elsewhere within the same group. Deduction of losses incurred during the liquidation of an intermediate holding company may be denied in certain situations. If a foreign branch is converted into a subsidiary, the participation exemption will, under certain circumstances, apply only once previous losses incurred by the branch are recovered.

5.

Conversion of Loans

In the past, a conversion into equity of a loan that had been (partially) written off could lead to a direct realization of taxable profit for the debtor, which might have reduced the losses that were eligible for setoff. The difference between the book value of the loan and its fair market value would form taxable income for the debtor. However, since this provision was met with considerable resistance in the corporate market (especially due to its adverse consequences for internal reorganizations and acquisition structures), a new way of taxing â&#x20AC;&#x153;conversion profitsâ&#x20AC;? was introduced.

In this system, which became effective in early 2006, under certain circumstances, the Dutch creditor realizes a gain upon conversion of a Baker & McKenzie

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loan to its subsidiary if this loan has been written off by the creditor.

However, this gain is not taxed immediately. Instead, a revaluation reserve is created upon conversion, equal to the amount by which the loan has been written off. If the fair market value of the loan increases again after the loan is converted into equity, a taxable profit is recognized for the amount of the increase. The revaluation reserve is simultaneously written off for the same amount of profit.

6.

New Possible Tax Planning Opportunities in 2007 and 2010

Within the framework of the 2007 CIT Reform and the proposed 2010 Budget, the application of the participation exemption may be extended to a number of interesting scenarios, depending on certain facts and circumstances. Below are certain significant examples.

7.

Active Companies Located in “Tax Havens”

Active companies in tax haven jurisdiction used to be disqualified from the participation exemption due to the subject-to-tax requirement. As this requirement was removed for active companies in 2007, 5% or more investments in active operations that are completely exempt from local taxation are now eligible for the Dutch participation exemption.

This renders the Netherlands more attractive than in the past for all sorts of active investments in jurisdictions that traditionally do not levy a profit tax or grant extensive tax holidays and that are currently referred to as “tax havens.”

8.

Mutual Investment Funds and Private Equity Funds

In respect of mutual investment funds, the participation exemption regime used to be available only to 5% quota holders in Dutch mutual investments funds. Presently, provided that the active asset test is satisfied, a Dutch holding company may apply the participation exemption to such investments, regardless of the jurisdiction in which the fund is located. This makes the Netherlands an excellent 106

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jurisdiction for feeder companies holding large investments in certain mutual and private equity funds, specifically in combination with the use of a Cooperative Association that is not subject to Dutch dividend withholding tax.

9.

Hybrid Instruments

The participation exemption for proceeds from hybrid debt instruments in cross border situations used to be contingent on the requirement that these proceeds were non-deductible at the level of the debtor. The rationale of this requirement was the prevention of double dip structure resulting from mismatches in the classification of debt instruments in the jurisdictions involved. The removal of such condition and the extension of the participation exemption regime to hybrid instruments with certain characteristics could open the door to double dip structures allowing a Dutch parent company to derive exemption benefits from instruments, leading to a deduction in the country of issuance.

10.

Real Estate Companies

Finally, the amendments in 2007 to the participation exemption regime with respect to real estate companies were particularly favorable. If more than 90% of the property of the subsidiary (on a consolidated basis) consists of real estate and that real estate is not directly or indirectly owned by a fiscal investment institution, the participation exemption would apply, provided that the parent company holds at least 5% of the shares in the subsidiary. This â&#x20AC;&#x153;90% Testâ&#x20AC;? must be considered on the basis of the subsidiaryâ&#x20AC;&#x2122;s consolidated balance sheet, with intercompany receivables and debts being set off against each other, meaning, they will not have any effect on the minimum real estate percentage. The value of the assets must be determined on the basis of their fair market value. For the years 2007-2009, it is therefore important to separate, as far as possible, real estate investments from business activities such as property management. If this is done properly, both the investment activities (real estate investment) and the business activities will qualify for the participation exemption.

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Starting 2010, however, the 90% test will be abolished. The application of the participation exemption regime will be determined on the general 2010 criteria described above.

E.

Capital Gains

Capital gains are generally subject to corporate income tax at the ordinary rate. Capital losses need not be deducted from capital gains but may be deducted in full from business profits. Under certain conditions, however, the taxation of the following capital gains may be delayed, as follows: 1.

Capital gains on voluntary or involuntary disposition of tangible and certain intangible capital assets (temporarily placed in the â&#x20AC;&#x153;reinvestment reserveâ&#x20AC;?).

2.

Capital gains earned when the capital asset is exchanged for another capital asset that has the same economic function in the business. For assets with a maximum depreciation period of 10 years, the acquired asset need not have the same economic function within the business as the replaced asset.

The gain may even be exempt in the following conditions: 3.

Capital gains on the disposition of qualifying equity participating interests in resident or non-resident companies (as referred to in Section 4 above regarding participation exemption)

4.

Capital gains on the transfer of assets (comprising a business or an independent part thereof) by one corporate taxpayer to another in exchange for shares (see Section 13 below)

F.

Limitations on Deductions of Interest

This Section provides an overview of certain restrictions on the deduction of interest expenses, considering certain peculiarities of hybrid loans.

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Please note that the Ministry of Finance published a “consultation” document in June 2009, in which various restrictions on interest deductions were announced, in combination with a compulsory Group Interest Box (see Section 1 above). This consultation document has not yet led to a legislative proposal in the 2010 Budget related to restrictions on interest deductions. A legislative proposal on these items is not expected before the end of 2009 and is therefore not expected to enter into force (if at all) before 2011. However, it is expected that the existing limitations on interest deductions described below will be substantially amended under these new restrictions.

1.

Article 10a, Dutch Corporate Income Tax Act of 1969

Interest payments (including related costs and foreign exchange results) in relation to “tainted debt” are disallowed under Article 10a of the Dutch Corporate Income Tax Act of 1969. Tainted debt is basically a debt incurred from a related company or individual (e.g., the shareholder) in order to fund a profit distribution or a capital contribution in a related entity (e.g., a participation of at least 33%) or to acquire shares in another entity (which is or becomes a related entity as a result of the acquisition).

The interest expense in relation to this tainted debt is not deductible, unless: •

it can be demonstrated that the contribution of loan capital instead of equity is largely based on business reasons (the business reasons criterion is used to exclude tax-driven schemes from eligibility for interest deduction; the saving of taxes will not qualify as a business reason); or

•

the interest payments are effectively taxed in the hands of the creditor at a rate of 10% in accordance with Dutch tax standards – the so-called “compensatory tax exception” (the use of loss carry forward is not allowed if the tax inspector can argue that the payments will not be effectively taxed due

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to losses or claims arising in a current year or in the near future – no compensatory tax will be deemed to exist).

As of 2008, this “compensatory tax exception” no longer applies if the tax authorities can reasonably establish that the loan, or the transaction in connection with which the loan was given, has not predominantly been entered into, for business reasons. This means that meeting the 10% compensatory tax threshold at the level of the creditor does not necessarily entail the deductibility of interest at the level of the debtor, as the tax authorities still have the opportunity to challenge a deduction for interest on a loan if the loan came into existence without sufficient business reasons. As the law does not include a grandfathering rule for existing loans, the deductibility of interest on all related party loans that were, until 1 January 2008, defended on the compensatory tax exception could potentially be challenged by the Dutch tax authorities.

2.

Article 10, 1, d, CITA Hybrid Loans

Debt is re-qualified into equity for tax purposes if the hybrid loan meets certain requirements. As a result, the interest on hybrid loans is also re-qualified into dividend and is thus not deductible for corporate income tax purposes (or received tax-exempt under the participation exemption, if applicable).

Debt is re-qualified into equity for tax purposes if the following conditions are fulfilled: •

The remuneration on the loan depends (almost) entirely on the profit of the borrower.

•

The loan is subordinated to all creditors.

•

The loan has no term but may be reclaimed only in case of insolvency or liquidation of debtor, or if it has a term of more than 50 years. Conversely, the participation exemption regime

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applies to income and gains received on hybrid loans, provided that: –

the creditor of the hybrid loan also has a shareholding in the issuer that qualifies for the application of the participation exemption regime;

–

a related company of the creditor of the hybrid loan has a shareholding in the issuer that qualifies for the application of the participation exemption regime; and

–

the issuer is a related company of the creditor.

Finally, the (non)deductibility of the interest paid at the level of the debtor in another country is not relevant to the applicability of the participation exemption in the Netherlands at the level of the creditor.

This may lead to an opportunity for tax efficient double dip structures.

3.

Article 10b, Corporate Income Tax Act of 1969

The interest paid and capital losses realized on a loan are not deductible, provided that the following characteristics are present: •

Debtor and creditor of the loan are allied companies.

•

The loan has no term or a term of more than 10 years.

•

The remuneration on the loan deviates considerably (i.e., by 30% or more) from an arm’s length interest rate.

If the redemption date of the loan is postponed, the term of the loan will be deemed extended accordingly as of the date of issuance of the loan.

4.

Thin Capitalization Rules

As of 1 January 2004, the Dutch Corporate Income Tax Act includes restrictions on the deductibility of interest expenses in the case of Baker & McKenzie

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companies that are largely financed by debt. These “thin capitalization rules” may be summarized as follows: In principle, the thin capitalization rules provide for a fixed maximum 3:1 debt-to-equity (D/E) ratio, which means that interest (including expenses) on the excess will not be deductible if, and to the extent that, the total debt exceeds three times the total equity. Whereas debt is taken into account in establishing the D/E ratio, only interest paid to related parties may be disallowed (and only if, and to the extent that, such interest exceeds interest received from related parties). Consequently, interest on third-party debt will remain fully deductible, although under certain circumstances, third-party debt may be considered related-party debt if guaranteed by a related company. The basic rules are reasonably clear: the D/E ratio is established on an annual basis by taking into account the non-weighted average equity at the beginning and at the end of the year. In addition, a de minimis rule is applicable whereby interest on the first EUR 500,000 of debt in excess of the ratio remains deductible.

For the purpose of calculating this D/E ratio, “debt” is defined as the balance of all loans payable and all loans receivable (e.g., for a company with 200 equity, 1,400 debt, and 800 loans receivable, and hence 600 net debt – all interest remains deductible), to the effect that the thin capitalization rules will not affect the mere borrowing and lending of funds within a group. Furthermore, “equity” is the company’s equity for tax purposes, excluding fiscal reserves and with a deemed minimum of EUR 1. As an alternative to applying the fixed D/E ratio, a company may from year to year decide to apply the average D/E ratio of the (international) group to which it belongs as its maximum D/E ratio. Unlike the fixed ratio for this purpose, the respective D/E ratios will be established on the basis of the respective statutory (consolidated) accounts, if possible, following the same accounting principles. This alternative may serve, for instance, companies active in a business with relatively high debt financing or with a high D/E ratio due to losses.

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G.

Flow-Through Entities

Dutch entities that do not incur a genuine risk in respect of intra-group loans or royalty transactions are no longer permitted to credit the foreign withholding taxes related to such interest or royalty income.

The flow-through entity is in fact treated as an intermediary company.

Technically, the denial of the credit is achieved by excluding the interest and royalties received and paid from the tax base in the Netherlands. The interest and royalties received and paid are excluded from the Dutch tax base under the following conditions: (a)

The Dutch entity receives and pays interest or royalties to and from a foreign entity within the same group.

(b)

The interest and royalties received and paid relate directly or indirectly to a loan or a royalty transaction.

(c)

The transactions are “closely connected.”

(d)

The flow-through company does not incur a genuine risk that may affect its equity.

A flow-through company is deemed to incur a genuine risk in respect of a loan if the equity is at least 1% of the outstanding loans, or EUR 2,000,000 and the taxpayer can prove that the equity capital will be affected if a risk arises. Even though the interest and royalty income and expenses are excluded from the taxable income, the flow-through entity should still report an arm’s length remuneration with regard to the services relating to the loan or royalty transaction.

During informal discussions in 2005 between tax advisors and the Dutch revenue, representatives of the Dutch revenue indicated that a flow-through company is deemed to incur a genuine risk in respect of the receipt and payment of royalties if its equity is at least below 50% of the expected gross royalty payments to be made by it, or EUR 2,000,000 and at least 50% of that amount has been paid in advance to the licensor.

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H.

Dividend Stripping

A refund, reduction, exemption, or credit of Dutch dividend withholding tax on the basis of Dutch tax law or on the basis of a tax treaty between the Netherlands and another state will be granted under the Dutch Dividend Tax Act of 1965 only if the dividends are paid to the beneficial owner of the dividends. Using so-called dividend stripping transactions, taxpayers subject to dividend withholding tax have sought to benefit from tax treaty and domestic law provisions to which they themselves were not entitled, e.g., by transferring shares temporarily to another party that would benefit from a full exemption from dividend withholding tax. The Dutch tax authorities took the position in court that the parties which temporarily acquired the shares were not the beneficial owners of the dividends. These attempts were, however, unsuccessful; after the Dutch tax authorities lost a number of cases in court, the legislator decided to introduce dividend stripping rules basically for cases where a party could not be considered the beneficial owner of the dividends.

A natural person or a legal entity is not deemed the beneficial owner if, in relation to becoming entitled to the dividend distribution, that person or entity has paid a consideration (in the broadest sense) within the framework of a combination of transactions where it may be assumed that: (a)

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all or part of the dividend distributions has been made, directly or indirectly (for instance, due to the payment of the consideration), for the benefit of: (i)

an individual or legal entity with respect to whom or which no exemption may be granted from the withholding obligation, whereas such exemption may be granted to the party paying the consideration; or

(ii)

an individual or legal entity (again, usually the original shareholder) whose entitlement to a reduction

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or refund of dividend tax is lower than that of the party paying the consideration; and (b)

the individual or legal entity directly or indirectly retains or acquires a position in stock, profit-sharing certificates, or profit-sharing bonds that is similar to its position in such stock, profit-sharing certificates, or profit-sharing bonds before the commencement date of the combination of transactions referred to above.

Certain factors reduce the chance of a dividend stripping situation arising, such as the period between the moment of the transfer and the dividend distribution, the character of the dividend (regular, incidental, or liquidation distribution) and the duration of the transfer.

The Dutch tax authorities are responsible for providing proof of dividend stripping under the new provision. In the event of a dividend stripping transaction, the Dutch company has to withhold 15% withholding tax on its dividend distribution. Regrettably, if the conditions for dividend stripping have been established, no reduction of the 15% withholding tax would be provided even if the deemed economic owner would have been entitled to a certain credit, reduction, or refund (e.g., 10% instead of 15%).

I.

Tax Incentives

The following measures provide tax relief to taxpayers: 1.

Investment Allowance

The investment allowance (investeringsaftrek) is limited to small investments (EUR 2,200 to EUR 240,000) and comprises a deduction of a percentage (in a digressive scale from 25% to 1%) of the invested sum from the profits of the year in which the investment was made. In addition, an investment allowance of 44% is available for energysaving investments (EUR 2,200 to EUR 113,000,000). Furthermore, an investment allowance of 15%, 30%, or 40% is available for certain qualified environment investments (but not if an energy investment Baker & McKenzie

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has already been applied for). In the Netherlands Budget 2010, the government proposes changes to the investment allowance for small investments, by increasing the percentage from 25% up to 28% and the investment amount from EUR 240,000 up to EUR 300,000.

Normally, the percentage of investment allowance decreases when the investment amounts increases. In the proposal, this graduated scale is simplified by setting a standard rule for determining the investment allowance.

If within five years after the beginning of the calendar year in which the investment took place more than EUR 2,200 in assets for which an investment allowance was claimed is disposed of, a proportionate percentage would be added to the companyâ&#x20AC;&#x2122;s profit (divestment addition or desinvesteringsbijtelling). Withdrawal from an asset is deemed a disposal in this respect. Assets that are used for the operation of a business that is subject to a regulation to prevent international double taxation are excluded from the investment allowance. However, an exception could be made by the Dutch Minister of Financial Affairs.

2.

Random Depreciation

Random accelerated depreciation (e.g., in one year) may be claimed for certain environment-friendly assets that are on the list of assets and regions compiled by the Ministry of Environmental Affairs. In addition, other assets on the list compiled by the Ministry of Economic Affairs are eligible for random depreciation. Furthermore, the motion picture industry may claim random depreciation or apply for an investment allowance.

In 2009, the Dutch government allowed a temporary exemption to the random depreciation rules, which allows companies â&#x20AC;&#x201C; which have invested in tangible fixed assets during 2009 â&#x20AC;&#x201C; to depreciate these assets to a percentage of 50% in 2009 and 50% in 2010. The Netherlands Budget 2010 proposed to extend this allowance for the year 2010. Investments made in 2010 can be depreciated to a percentage of 50% in 2010 and 50% in 2011.

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3.

Tax-Free Reserves

A tax-free allocation of profits to a reserve is permitted in two instances, provided that proper accounting records are maintained: (a) for the purpose of spreading intermittently recurring costs (“equalization reserve”); and (b) for replacing tangible or intangible capital assets in case of voluntary or involuntary disposition (“reinvestment reserve”).

J.

Losses

As from 2007, a tax loss incurred during a fiscal year may be carried back to the preceding or carried forward to the nine subsequent years, subject to certain detailed anti-abuse provisions. This means, for example, that a tax loss in 2007 may be credited with taxable profit of the year 2006 or the years 2008 up to and including 2016. As a transitional rule, all tax losses incurred up to and including 2002 may be carried forward for compensation with taxable profit of the years 2007 up to and including 2011. This means that tax losses incurred before 2003 will expire by 2012.

The Netherlands Budget 2010 includes a temporary measure with regard to the extension of loss deduction. Losses can be carried back up to three years, whereby the carry forward of losses shall be limited to six years instead of nine. Such extension of the carry back period is limited to EUR 10,000,000 per (fiscal) year.

The amount of tax losses that may be carried back or forward has to be determined by the Dutch tax authorities after the taxpayer files its annual corporate income tax return. In sum, the anti-abuse provisions restrict loss compensation if (i) at least 30% of the ultimate shareholders in a company have changed as compared to the oldest year in which the losses were incurred, and (ii) the change of control occurred after the company terminated or largely reduced its former business activities.

Losses incurred in years during which the taxpayer qualifies as a holding company (i.e., during 90% of the year, 90% or more of its Baker & McKenzie

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work consists of holding or group financing activities) may be set off only against profits derived in years during which the taxpayer also qualifies as a holding company. This rule is intended to prevent purely holding companies from initiating active operations with the (exclusive) aim of setting off their (holding) losses against operating profits. Nor may holding company losses be carried forward if a holding company increases the balance of its intercompany loans and liabilities (compared to the balance in the year when the loss was incurred) in order to generate additional interest income which is to be set off against previous losses. The law provides for a safe harbor rule: companies with at least 25 full-time employees who are not engaged in the holding (management) of subsidiaries or the financing of affiliates are not deemed holding companies for loss compensation purposes.

K.

Liquidation

Capital gains arising from the liquidation of a company are subject to corporate income tax at normal rates, unless an exemption applies (e.g., participation exemption for capital gain on qualifying shareholding). Liquidation distributions to shareholders are treated as follows: (a)

Repayment of paid-in capital, including share premiums and capitalized profits but excluding retained earnings, is tax-free (with certain exceptions).

(b)

Any other payment is deemed a dividend and therefore subject to dividend withholding tax. Dividend withholding tax will not be levied if the recipient is:

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(i)

a Dutch resident company that qualifies for the participation exemption;

(ii)

an EU resident company that qualifies for the EU Parent-Subsidiary Directive and at the time of the

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liquidation holds at least 5% of the issued and paid-in capital of the distributing company; and/or (iii)

a recipient that may benefit from an exemption based upon a tax treaty.

L.

Mergers and Demergers

1.

Business Merger

Taxation of capital gains, realized on the transfer of the assets and liabilities (comprising a business or an independent part thereof) of one company to another (existing or newly incorporated) company may be “rolled over” under the “merger exemption” if the business is transferred in exchange for shares in that other company. This exemption is subject to the following conditions: (a)

The only compensation received by the transferring company consists of shares in the receiving company.

(b)

The future levy of corporate income tax is assured. This condition implies that for tax purposes, the transferee company must take the same basis in the assets and liabilities which the transferring company had immediately prior to the transfer.

(c)

None of the companies suffered losses eligible to be carried forward prior to the merger.

(d)

Both companies are subject to the same tax regime. This will not be the case if, for instance, one company is a regular taxpayer while the other company qualifies as an investment institution and is therefore subject to a 0% corporate income tax rate.

(e)

The shares acquired by the transferring company are not disposed of within three years.

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Under Dutch tax law, mergers and demergers may be exempt from Dutch corporate income tax, provided that certain requirements are met. In general, the legal merger and demerger exemption does not apply if the merger/demerger is predominantly pursued with the aim of avoiding or deferring taxation.

The Ministry of Finance issued several regulations in the form of “standard conditions” that must be met for the merger exemption to apply. This exemption has undergone only technical changes as a result of the implementation of the EC Merger Directive. For instance, the exemption is also applicable if a permanent establishment of a non-resident company is converted into a resident company. In principle, this exemption will apply only insofar as the transfer of assets leads to a full financial and economic integration of the business involved.

2.

Merger by Share-for-Share Exchange

As a result of the implementation of the EC Merger Directive, it is possible for a non-resident taxpayer (e.g., an individual) holding shares in a Dutch corporation to exchange those shares for shares in another EU corporation without triggering Dutch corporate income tax. Once again, specific requirements must be fulfilled. One of the most relevant conditions is that both EU corporations involved in the merger must be qualified corporations. Furthermore, the (acquiring) corporation must acquire more than 50% of the voting shares in the Dutch corporation.

3.

Legal Merger

The Corporate Income Tax Act of 1969 also provides for the “legal merger” facility, whereby the assets and liabilities of the absorbed company are passed on to the absorbing company and the absorbed company itself ceases to exist. The shareholders in the absorbed company receive shares in the absorbing company. The two companies are basically amalgamated into one, without the need to liquidate the absorbed company. Alternatively, a new third company can absorb the assets and liabilities of the two former companies. One 120

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of the conditions for a legal merger is that both companies involved be either NVs or BVs. In practice, the tax treatment of a legal merger will be similar to that of a business merger.

4.

Demerger

In general, the legal demerger of companies allows the transfer of all or part of the property, rights, interest, and liabilities of one legal entity to one or more other legal entities by means of a universal transfer of title, i.e., without the separate transfer of all of the assets and liabilities. The main principle is that the shareholders of the legal entity being demerged all become shareholders of the transfereecompany (i.e., the acquiring company or companies). In general, two main types of demerger may be distinguished: â&#x20AC;˘

A full demerger whereby the property, rights, interests, and liabilities of a legal entity that ceases to exist on completion of the demerger are acquired by two or more other legal entities.

â&#x20AC;˘

A partial demerger involving a split whereby all or part of the property, rights, interests, and liabilities of one legal entity are acquired by one or more other legal entities (the original legal entity does not cease to exist on completion of the demerger).

Demergers may be effected without incurring corporate income tax under certain conditions, which is quite similar to the condition for the transfer of assets.

M.

Fiscal Unity

The Dutch Corporate Income Tax Act of 1969 provides for a fiscal unity regime that, subject to certain conditions, permits companies that are members of a fiscal unity to file a consolidated tax return.

Upon request, companies that are tax residents of the Netherlands (an NV, BV, a cooperative, or a mutual guarantee association) may form a fiscal unity with subsidiaries in which a participation of at least 95% is held. The main advantages of the fiscal unity regime are that profits and losses may be freely set off among members of the fiscal unity and members can avoid the realization of income on transactions Baker & McKenzie

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between them. After the formation of a fiscal unity, only the parent company is in fact recognized as a taxpayer for Dutch corporate income tax purposes. Any income or expense at the level of the subsidiary company is automatically aggregated at the level of the parent company.

The most important characteristics of a fiscal unity are as follows: (a)

To opt for fiscal unity, a parent company must own at least 95% of the shares of a subsidiary.

(b)

Under certain conditions, qualifying subsidiaries may enter into a fiscal unity with the parent company during the fiscal year (e.g., as of the date of acquisition of the subsidiary).

(c)

Fiscal unities may be ended toward one or more consolidated subsidiaries during the course of the fiscal year (e.g., as of the date of disposal of the subsidiary).

(d)

A company leaving the fiscal unity may, under certain conditions, retain losses that have not yet been set off and that were incurred during the fiscal unity period, provided that these losses were attributable to that company.

(e)

Under certain conditions, Dutch permanent establishments of foreign companies may enter into fiscal unity with a Dutch (resident) company or another Dutch branch of a foreign company, provided there is a shareholding of at least 95% between the companies.

N.

Investment Companies (FBI)

Investment Companies (Fiscale Beleggingsinstelling, hereinafter referred to as â&#x20AC;&#x153;FBIâ&#x20AC;?) enjoy a beneficial tax regime if certain requirements are met. Based on this regime, profits are not subject to tax, pursuant to the obligation to distribute the net investment income within eight months of the following financial year. Furthermore, 122

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capital gains are not mandatorily distributed and may instead be transferred to a tax-free “reinvestment reserve.” Please note that profit distributions (except for a distribution of the reinvestment reserve) will trigger the application of a 15% Dutch dividend withholding tax, unless reduced by an applicable tax treaty or the Parent-Subsidiary Directive.

Recently, certain requirements of the FBI regime (i.e., accessible to foreign legal entities, shareholders’ requirements, and real estate development activities) have been amended. The changes were mainly intended to remove certain features from the regime that represent potential infringements of EU law. Furthermore, the scope of the regime with respect to real estate development activities has been amended.

In order to qualify as an FBI, a company must meet the following cumulative requirements throughout the entire tax year: 1.

The FBI must be set up as a Naamloze vennootschap (“NV”), besloten vennootschap (“BV”), Fund for Joint Account, or any other Dutch resident entity established under the laws of the Netherlands Antilles, an EU Member State or any other state in case a Double Tax Treaty has been concluded with that other state, provided that the legal form of these foreign entities is comparable to an NV, a BV, or Fund for Joint Account.

2.

The (statutory and actual) activities are collective Passive Investments.

3.

Debt is maximized at 60% of the tax book value of real property investments and 20% of the tax book value of other investments.

4.

The net investment income must be distributed within eight months of the following financial year.

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5.

The net investment income must be distributed pro rata to all participants.

Furthermore, there cannot be any differences in distribution rights (e.g., income and accumulation shares).

6.

7.

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If the vehicle is quoted on a financial market under the Financial Supervision Act or the vehicle or its trust has a license under the Financial Supervision Act or has been exempt from being licensed: –

the interest is not held for 45% or more by an entity which is subject to a profit tax (excluding qualifying investment institution) or by two or more of these entities if they are related as defined in the law; and

–

individuals may not have an interest of 25% or more in an exempt investment company quoted on a financial market under the Financial Supervision Act or in a non-quoted exempt investment company which has a license under the Financial Supervision Act.

If the vehicle is not quoted on a financial market under the Financial Supervision Act or the vehicle or its trust does not have a license under the Financial Supervision Act or has not been exempt from being licensed: –

at least 75% of the interest must be directly or indirectly held by individuals or exempt investors or by investment institutions quoted on a financial market under the Financial Supervision Act; and

–

individuals may not hold an interest of 5% or more.

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8.

The interest in the vehicle is not held for 25% or more by Dutch resident companies via a non-resident corporate shareholder.

9.

A director or more than half of the members of the supervisory board cannot be a director, a member of the supervisory board, or an employee of an entity which holds (alone or together with related entities) 25% or more of the shares in the vehicle, unless this latter entity is quoted on a financial market under the Financial Supervision Act.

With regard to requirement (3), we note that in Tax Package 2009, it is proposed that this requirement be relaxed. The requirement is difficult to meet if, for example, an FBI has a subsidiary owning real estate and the FBI will take up a bank loan to finance its subsidiary.

Economically, it would seem reasonable to apply the 60% maximum that is set for real estate investments. However, current legislation maximizes such debt to real estate subsidiaries to 20%.

To increase the flexibility of the FBI regime and to bring the FBI conditions in line with economic reality, it is proposed, among other things, that the loan taken and the loan granted be disregarded at the level of the FBI. Thus, the 60% debt limitation is applied at the level of the subsidiary in the above-described example.

With regard to requirements (6) and (7), we note that under certain conditions, the Dutch tax authorities accept that these requirements are not yet fulfilled during the two years following the incorporation of the FBI. Fiscal reserves or goodwill will be taxed at the moment the FBI regime becomes applicable. However, the regime cannot apply automatically.

Real estate development activities are now allowed by the FBI or by 100% subsidiaries of an FBI, under the following limitations: â&#x20AC;˘

The FBI is allowed to hold shares in a subsidiary that conducts real estate development activities. Such subsidiary

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will be taxed against the regular 25.5% corporate income tax rate. The FBI is explicitly not allowed to develop real estate in the FBI itself.

•

If the FBI wishes to develop its own real estate investments, the subsidiary may develop the real estate held by the FBI in exchange for an arm’s length remuneration. The result is a taxable development activity at the level of the subsidiary and exempt Passive Investment income at the level of the FBI.

•

The renovation of real estate by the FBI itself is also allowed as long as the costs related to the renovation stay within 30% of the fair market value of the real estate.

As of 1 January 2008, a new credit mechanism has been introduced for FBIs. Based on this credit mechanism, Dutch dividend withholding tax to be paid by the FBI to the tax authorities may be reduced by the Dutch and foreign withholding tax levied on the investment income of the FBI.

O.

Exempt Investment Fund (VBI)

Currently, investments are pooled via the FBI regime mentioned above or via a transparent entity. The main advantage of the FBI is that the proceeds from the investments are not subject to corporate income tax. However, the profits (excluding capital gains) realized by the FBI must be distributed to the participants annually and, consequently, become subject to 15% Dutch dividend withholding tax.

In order to create a more favorable regime (i.e., no mandatory distribution of dividends, no dividend withholding taxation in the Netherlands), a second investment vehicle (Vrijgestelde Beleggingsinstelling, herein referred to as “VBI”) has been introduced as of 1 August 2007.

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Any taxpayer in the Netherlands that is subject to corporate income tax may opt for the application of this VBI regime, provided that the following requirements are met: •

The VBI is set up as a Naamloze vennootschap (“NV”), Fund for Joint Account, or any other Dutch resident entity established under the laws of the Netherlands Antilles, an EU Member State or any other state in case a Double Tax Treaty has been concluded with that other state, provided that the legal form of these foreign entities is comparable to an NV, a BV, or Fund for Joint Account.

•

The VBI is set up as an open-end investment fund, meaning, the fund should allow the repurchase of shares at regular moments.

•

The VBI regime is stricter in terms of the allowable activities.

For instance, it may invest in the so-called “financial instruments” only as defined in the MiFID, e.g., shares, bonds, options, futures, swaps. It is also allowed to invest in Dutch and foreign real estate indirectly, i.e., via a (nontransparent) Dutch or foreign entity or a real estate investment fund. In addition, it may invest in foreign real estate through a transparent or non-transparent entity or partnership; the limitation then is focused only on Dutch real estate.

Please note that due to the lack of tax treaty protection, withholding tax levied by the investor country will be actual costs for the investment fund. Interest-bearing investments (instead of dividendgenerating investments) are therefore most interesting, since less countries levy interest withholding tax.

•

The VBI has no specific shareholder requirements; thus, individuals, corporations, and institutional investors may invest via a VBI. However, a decree was published on 10 March 2008, and in which the Ministry of Finance tightened the possibilities for substantial shareholders to “misuse” the

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investment regime. It becomes clear from the decree that the Dutch tax authorities would not easily approve the request to qualify as a VBI if the VBI was mainly set up as an exempt fund for (effectively) only one shareholder. â&#x20AC;˘

The VBI should be diversifying risks, meaning, it could not invest in one asset only (apart from feeder funds).

The VBI regime does not have any distribution obligations. However, Dutch (corporate and individual) investors do have to revaluate their interest to fair market value every year, as a result of which the underlying (realized and unrealized) income will be taxable at the level of the Dutch shareholders.

Note that the Dutch participation exemption does not apply to a shareholding in a VBI. Furthermore, a VBI may not credit withholding taxes incurred, as it is not subject to tax. For the same reason, VBIs do not have access to the Double Tax Treaty network of the Netherlands.

Conclusively, the VBI is an attractive vehicle for structuring investments like interest-bearing investments, since inbound interest flows are usually not subject to withholding tax. In such case, the proceeds derived from investments are received without any Dutch tax burden by the ultimate shareholder, as the income of the VBI is not taxed in the Netherlands and neither is a dividend distribution from the VBI to its shareholders.

P.

Transfer Pricing Regime

The Netherlands transfer pricing regime is governed by Article 8b of the Corporate Income Tax Act of 1969 and by a series of relevant transfer pricing decrees that address advance certainty (Advance Pricing Agreements) to observations regarding R&D, the appropriate cost base and the allocation of competencies at the Revenue Service.

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Most important are Decree IFZ2004/680M (which contains information on group services and shareholder activities, “Support” services, Contract research, Cost Contribution Arrangements [CCA], Arm’s length prices in case valuation is uncertain, Crediting or offsetting withholding taxes) and IFZ2004/126M on the treatment of former flow-through entities (FTE).

The Netherlands transfer pricing regime can be characterized as pragmatic in the sense that the tax authorities are not necessarily overformalistic in applying the OECD Guidelines. Profit-based methods are accepted and so are Pan-European comparables. Transfer Pricing documentation may be prepared in the English language, and if documentation is not currently available, a period of four weeks up to three months is deemed reasonable to allow taxpayers to prepare such documentation.

As the Netherlands traditionally houses many companies that have headquarters in the Netherlands also due to the vast treaty network of the Netherlands, service functions and headquarters costs historically have the tax inspector’s interest. Furthermore, “flow-through” entities with back-to-back royalty and interest flows can traditionally expect a relaxed and pragmatic treatment by the tax authorities. This is not to be interpreted as the tax authorities not being protective of their tax base, however. Multinationals with group entities in low tax jurisdictions can expect great scrutiny, and outgoing payments are invariably reviewed in transfer pricing audits. The OECD Guidelines are incorporated in domestic law by reference to them in the listed Decrees. Advance Pricing Agreements are encouraged and the Dutch tax authorities aim to be the premier service providers in that they strive to provide for rapid advance certainty in a mutually agreed-on period of time.

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Q.

European Economic Interest Grouping and Societas Europaea

1.

EEIG

Since July 1989, it has been possible to form a European Economic Interest Grouping or “EEIG” (in Dutch, Europees Economisch Samenwerkingsverband or “EESV”) in the Netherlands. An EEIG must be registered with the Trade Register of the Chamber of Commerce. An EEIG with official address in the Netherlands is considered a legal entity under Dutch law. A regulation has been published with respect to the taxation of EEIGs. The following general rules apply: (a)

EEIGs are “tax-transparent” and therefore not subject to Dutch corporate income tax. The profits resulting from the activities of an EEIG are taxable only in the hands of its members. “Tax transparency” does not apply to other taxes (e.g., wage tax).

(b)

Foreign members will be subject to tax in the Netherlands only if the business in the Netherlands is run via a permanent establishment or a permanent representative.

(c)

The EEIG itself does not have access to the Dutch tax treaty network as it does not qualify as a Dutch resident.

2.

Societas Europaea

As of 2004, it has been possible to incorporate a European company or Societas Europaea (SE). The SE has legal personality and is in many respects comparable to a Dutch NV or BV. For Dutch tax purposes, an SE that has its registered office in the Netherlands is treated similarly to a Dutch NV (a public limited liability company).

This means that SEs are subject to the same taxes as Dutch NVs and that SEs have access to the same tax facilities available to NVs, such as the fiscal unity facility and the participation exemption. SEs are

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also eligible for the benefits of the EU Parent-Subsidiary Directive, the EU Interest and Royalties Directive, and the EU Merger Directive.

There are four ways to incorporate an SE: (a)

Through a legal merger between two companies based in different EU Member States

(b)

Through incorporation of an SE as a holding company for two companies based in two different EU Member States or with subsidiaries in two different EU Member States

(c)

Through incorporation of an SE as a subsidiary of:

(d)

(i)

two companies based in two different EU Member States; or

(ii)

an SE

Through a change of corporation form from an eligible company (e.g., an NV) to an SE

Although there are rules restricting the way an SE may be incorporated, anyone can become a shareholder. An SE is able to transfer its registered office from one EU Member State to another. In addition, a group that has companies throughout the EU can now create a uniform management structure by forming an SE, since SEs may opt for a one-tier or two-tier board system. Another relevant practical aspect is that the formation of SEs makes international legal mergers possible between companies incorporated under the laws of an EU Member State.

R.

EU Interest and Royalty Directive

The EU Interest and Royalty Directive took effect on 1 January 2004.

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tax on interest and royalty payments. Furthermore, EU Member States have the option not to apply the Directive if companies do not meet a direct shareholdersâ&#x20AC;&#x2122; test for an uninterrupted period of two years. The Directive is effective for the EU Member States. Since the Netherlands does not levy a withholding tax on interest and royalty payments, the effects of the Directive on Dutch legislation is limited.

S.

EU Savings Directive

The EU Savings Directive took effect on 1 July 2005, with the aim of enabling the taxation of savings income in the form of interest payments. Payments made in one Member State to beneficial owners who are individual residents for tax purposes in another Member State fall within the scope of the Directive. After the obligatory exchange of information from the Member State where the payment originates to the Member State of which the beneficiary is a resident, the income may be taxed in accordance with the laws of the latter Member State.

In principle, a zero withholding tax rate applies to payments between Member States. However, a transitional period is observed for Austria, Belgium, and Luxembourg.

T.

EU Parent-Subsidiary Directive

The Directive gives complete relief from double taxation in the EU on dividend income by abolishing dividend withholding tax on dividends flowing from a subsidiary to its parent company (or to a permanent establishment of the parent company) within the EU, provided that the companies have a qualifying parent-subsidiary relationship. As of 1 January 2009, participating interests in a parent-subsidiary relationship of 10% or more qualify for the provisions of the Directive. The withholding tax exemption may be applied under the Directive if all of the following criteria are complied with: 1.

The parent company holds a minimum of 10% of the capital of the subsidiary.

2.

Both parent and subsidiary have one of the legal forms listed in the Annex to the Directive.

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3.

The parent and subsidiary are companies that, according to the tax laws of their respective countries, are considered resident of their respective countries for tax purposes and under the terms of a double taxation agreement concluded with a third country. Neither of them is considered a resident for tax purposes outside the EU.

4.

The parent and subsidiary are companies that are subject to one of the taxes listed in the Directive, without the possibility of being exempt or having an option to be exempt.

As of 1 January 2007, Dutch domestic law provides for an exemption from dividend withholding tax on distributions made to 5% or more shareholders in the EU. This means that the Dutch rules are more favorable than those required by the EU participation exemption.

U.

EU Merger Directive

The EU Merger Directive is implemented in Dutch law and is described under Section 12.

V.

Summary of the Netherlandsâ&#x20AC;&#x2122; Bilateral Tax Treaties

The Netherlands has one of the most extensive tax treaty networks in the EU. The treaties generally provide for substantial reductions of withholding tax on dividends, interest, and royalties. Below, a list is included of the treaties currently in force and under negotiation as well as the treaty reductions for withholding taxes. Most tax treaties negotiated by the Netherlands relating to income and capital are based on the draft models published by the Organisation for Economic Cooperation and Development (OECD) in 1963, 1977, and 1992â&#x20AC;&#x201C;2000.

Double taxation or taxation not in accordance with the convention for avoidance of double taxation is to be resolved under Decree of September 29, 2008, no. IFZ 2008/248M.

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Tax treaties are currently in force in the following countries: •

Albania

•

Finland

•

Mexico

•

Argentina

•

France

•

Moldova

•

Armenia

•

Georgia

•

Mongolia

•

Aruba

•

Germany

•

Morocco

•

Australia

•

Ghana

•

•

Austria

•

Greece

Netherlands Antilles

•

Azerbaijan

•

Hungary

•

New Zealand

•

Bahrain

•

India

•

Nigeria

•

Bangladesh

•

Indonesia

•

Norway

•

Barbados

•

Iceland

•

Pakistan

•

Belarus

•

Ireland

•

Philippines

•

Belgium

•

Israel

•

Poland

•

Bermuda

•

Italy

•

Portugal

•

Brazil

•

Japan

•

Qatar

•

Bulgaria

•

Jersey

•

Romania

•

Canada

•

Jordan

•

Russia

•

China (excluding Hong Kong and Macau)

•

Kazakhstan

•

Saudi Arabia

•

Korea

•

Singapore

•

Kuwait

•

Slovak Republic

•

Croatia

•

Latvia

Slovenia

Czech Republic

•

Lithuania

•

•

South Africa

Luxembourg

•

•

•

Denmark

Spain

Macedonia

•

•

•

Egypt

Sri Lanka

Malaysia

•

•

•

Estonia

Suriname

Malta

•

•

•

Sweden

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•

Switzerland

•

Uganda

•

Uzbekistan

•

Taiwan

•

Ukraine

•

Venezuela

•

Thailand

•

•

Vietnam

•

Tunisia

United Kingdom

•

Zambia

•

United States

•

Zimbabwe

•

Turkey

Tax treaties are still in force in the following countries after split or separation from the (former) Soviet Union and Yugoslavia: •

Kyrgyzstan*

•

Montenegro

•

Tajikistan*

•

Serbia

•

Turkmenistan

•

Kosovo

•

Bosnia-Herzegovina

* Treaty unilaterally applied by the Netherlands Negotiations are underway or have been held already and tax treaties have been concluded but have not yet entered into force (*). These involve the following: •

Algeria

•

Hong Kong

•

Slovakia

•

Australia

•

Indonesia

•

Switzerland

•

Brazil

•

Iran

•

Tajikistan

•

Canada

•

Isle of Man

•

Tanzania

•

China

•

Japan

•

Turkmenistan

•

Cuba

•

Kenya

•

Turkey

•

Cyprus

•

Kyrgyzstan

•

•

Costa Rica

•

Libya

United Arab Emirates *

•

France

•

Mexico

•

Germany

•

Peru

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Tax treaties with regard to profits from air and/or sea shipping are currently in force in the following countries: •

Argentine air/sea

•

Hong Kong air/sea

•

Armenia air

•

Hungary air

•

Albania air

•

Iran air

•

Azerbaijan air

•

Isle of Man air/sea

•

Bahrain air

•

Korea sea

•

Barbados air

•

•

Belarus air

•

Brunei air

•

Senegal air

•

Seychelles air

•

Slovak Republic air

•

Slovenia air

•

South Africa air

Latvia air/sea

•

Sudan air

•

Lithuania air/sea

•

Suriname air

•

Syria air

Canada air

•

Macau air

•

Taiwan sea

•

Cape Verde air

•

Macedonia air

•

Togo air

Malawi air

Uganda air

China (People’s Rep.) air/sea

•

•

•

•

Maldives air

•

Ukraine air

•

Mexico sea

•

United Arab Emirates air

•

Oman air

•

Uruguay air

•

Poland sea

•

•

Panama air/sea

Uzbekistan air

•

Venezuela air/sea

•

Vietnam air

•

•

Croatia air

•

Cuba air

•

Czech Republic air

•

Egypt air

•

Estonia air/sea

•

Georgia air

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•

Qatar air

•

Russia sea

•

Saudi Arabia air

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Negotiations are underway regarding the conclusion and/or amendment of tax treaties with regard to profits from air and/or sea shipping with: •

Angola

•

Guatemala

•

Colombia

•

Haiti

•

Faroe Islands

•

Iran

•

Gabon

•

Ivory Coast

•

Ghana

•

Jamaica

Furthermore, the Netherlands is a signatory to the Convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (‘Arbitration Convention’) of July 23, 1990.

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XIV. Other Taxes A.

Value-added Tax (VAT)

1.

Taxable Persons

In general, taxable persons are all entities or individuals that perform taxable supplies of goods and services, or intra-Community acquisitions, in the course of a business, in the Netherlands. If a foreign business supplies goods and/or services within the Netherlands, it is considered a taxable person for Dutch VAT purposes.

2.

Taxable Transactions

VAT is imposed on the following transactions: •

the supply of goods or services by a taxable person in the course of a business;

•

the intra-Community acquisition of goods from other EU countries by a taxable person or a non-taxable legal person in excess of a certain threshold;

•

the intra-Community acquisition of new means of transport by anyone; and

•

the importation of goods from outside the EU by anyone.

Dutch VAT is due if these transactions can be located in the Netherlands.

If a foreign business (without a fixed establishment in the Netherlands) supplies goods or services to a taxable person or a nontaxable entity established in the Netherlands, a reverse charge mechanism generally applies. Pursuant to the reverse charge mechanism, the Dutch VAT due is levied from the taxable person or

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non-taxable entity receiving the goods or services. There is no VAT registration threshold in the Netherlands.

3.

Place of Supply

If goods or services are supplied to another county, the place of supply rules determine in which country VAT is due.

In the case of supplies of goods, the place of supply (and liability to pay VAT) will be in the country where the goods are located at the time the right to dispose as owner of the goods has transferred (regardless where the supplier or recipient is established). If the goods are transported in relation to the supply, VAT is due in the country where that transport commences. For intra-Community supplies specific rules apply (also see below).

As of 1 January 2010, the general rule for business-to-business supplies of services is that services are deemed to take place in the country where the (VAT-taxable) recipient of the service is established. In cross-border situations, the liability to pay VAT is shifted to the (VAT-taxable) recipient (please note that this includes exempt entities such as, for example, insurance companies, banks, hospitals). Exceptions to the general rule for business-to-business services will continue to exist (for example services related to real estate and transport of persons).

Prior to January 1, 2010 services were as a general rule deemed supplied (and are therefore subject to VAT) in the country where the service provider is established. Various exceptions to this general rule existed, e.g., advisory services, financial services, and telecommunication services, which were deemed to take place (and taxed) in the country where the (VAT-taxable) recipient of the service is located.

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continue to exist. In 2013 and 2015, a change of the place of supply rules for consumer sales will take place with regard to, among others, long-term rental (lease) agreements for means of transport, respectively e-commerce and telecommunication services.

4.

Intra-Community acquisitions

A taxable person who sells and transports goods to a taxable person located in another EU country performs an intra-Community supply in the EU country of dispatch of the goods. The receiving taxable person performs a taxable intra-Community acquisition in the EU country of arrival of the goods. Non-taxable legal persons are treated as taxable persons for their intra-Community acquisitions if such acquisitions exceed an annual threshold (EUR 10,000 in the Netherlands) in the current calendar year, or have exceeded this threshold in the previous calendar year.

5.

Exempted Activities

VAT exemptions include the following categories: •

exemptions in public policy with regard to the fields of education, culture, or social welfare;

•

exemptions based on a policy to avoid administrative complications for the supplier (such as banking, and other financial transactions); and

•

exemptions related to the supply of Dutch real estate. In principle, the supply of Dutch real estate is exempt from VAT. There are three exceptions:

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–

the supply of a building and accompanying land up to a period of two years after the first use of the building is subject to VAT;

–

the supply of “building land” is subject to VAT. Building land can be described as undeveloped land Baker & McKenzie

intended for building purposes. VAT on the supply of such property is due only if at least some activities have been carried out to make the land more suitable for building activities or if a building permit is issued; and â&#x20AC;&#x201C;

6.

the supply of real estate may also be subject to VAT if the seller and the purchaser have opted for a VATtaxed supply through a joint request. This request can be granted only if the purchaser uses the real estate for more than 90% of the taxable activities.

Rates

The general Dutch VAT rate is currently (2010) 19%. A reduced rate of 6% applies to a number of essential goods and services, such as various food items, gas, electricity, some pharmaceutical products, etc.

A zero rate generally applies to supplies of goods not cleared through customs (either because they are merely passing through the Netherlands or because they are stored in the Netherlands), supplies of goods that are exported from EU countries, intra-Community supplies, and services connected to such supplies.

7.

Payment, VAT Returns, and Administrative Requirements

VAT is due on the aggregate value of the goods and services sold during the preceding period. A special scheme exists for qualifying sales of used goods, works of art, antiques, and collectorsâ&#x20AC;&#x2122; items.

Under this scheme, VAT can be calculated on the margin.

Depending on the amount of turnover, VAT returns must be filed monthly, quarterly, or annually. VAT returns must be submitted and the VAT due must be paid within one month after the filing period.

Taxable persons established in the Netherlands must file their VAT

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returns electronically (i.e., online or using a designated software program).

Taxable persons performing intra-Community supplies must also periodically file EC Sales listings, stating the names and the VAT identification numbers of their customers in other EU countries. In addition, taxable persons have to provide the Dutch Central Bureau of Statistics with information regarding their intra-Community trade if their intra-Community supplies or acquisitions exceed the threshold of EUR 400,000 (INTRASTAT filings).

The VAT system is built around invoices and the obligation to issue them. Invoices have three functions in the VAT system: (i)

They contain information as to which VAT regime is applicable;

(ii)

They enable the tax authorities to carry out audits; and

(iii)

They enable taxpayers to prove, whenever necessary, their right to recover input VAT.

There are several mandatory items that must appear on invoices.

Taxable persons must have copies of all their sales invoices and originals of all purchase invoices in their records at all times.

B.

Real Estate Transfer Tax

The acquisition of Dutch immovable property, including the acquisition of beneficial ownership, is subject to a real estate transfer tax of 6%. The transfer tax is calculated on the purchase price or the market value, whichever is higher. Legally, transfer tax is to be paid by the purchaser, but it is customary for the buyer and the seller to agree on who will effectively bear the tax.

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certain certificates entitling the holder to a proportionate share of immovable property are, under certain conditions, also subject to 6% transfer tax.

Acquisitions by way of inheritance and gifts (except for gifts of shares in real estate companies) and acquisitions by a company within the scope of an internal reorganization qualify for an exemption of transfer tax under certain conditions. Furthermore, an exemption may apply if the acquisition of the supply of immovable property is subject to VAT.

C.

Withholding Tax Dividends

Dividends and other distributions of profits (including interest on loans which are considered to be equity and liquidation payments in excess of the paid-in capital) paid by companies that are resident in the Netherlands are subject to 15% dividend withholding tax in the Netherlands.

Under certain circumstances, the rate of 15% is reduced; reference is made to Sections 4 (0% under the participation exemption), 17 (0% under the EU Parent Subsidiary Directive; please note that the EU parent company needs to hold an interest of only 5% in the Dutch distributing company under Dutch national law instead of the 10% interest required by the EU Parent Subsidiary Directive), and 19 (the rate is reduced under bilateral tax treaties to usually 0%, 5%, or 10%).

A dividend tax return must be filed with the local Tax Inspector by the distributing company, and the dividend tax withheld must be paid to the Tax Collector within one month after the date on which the dividend becomes payable. The Tax Inspector may impose a penalty for late filing of a dividend tax return.

D.

Interest and Royalties

There is no Dutch withholding tax on interest and royalties paid by companies that are resident in the Netherlands.

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XV. International Distribution Centers/Customs Facilities Upon importation of goods into the free circulation of the European Union, import duties, import VAT (and if applicable, excise duties) in principle become due. Import duties are calculated based on the customs value of the goods multiplied with the applicable tariff rate.

The applicable tariff rate depends on the customs classification and the (preferential) origin of the goods. Once paid, import duties are in principle non-refundable and thus become a cost. Also, postponement of the levying of import duties using the applicable customs procedures may present the possibility of a cash flow advantage.

Therefore, it may be beneficial to either postpone or avoid the levy of import duties for goods entering the Netherlands.

One of these customs procedures is the storing of goods in a customsbonded warehouse. In the Netherlands, several customs warehousing arrangements are available by means of which the levying of import duties can be deferred. These customs warehouse facilities can be useful when goods are to be re-exported (in which case import duty and/or VAT may not be payable at all), or when there are difficulties applying certain import licensing requirements. Using the customs transits procedure, it is possible to transport goods under deferral of import duties between two places in the EU. In principle, in order to process imported goods, these goods would first have to be brought into free circulation. This could mean payment of import duties. If no measures are taken, these paid import duties cannot be refunded. In order to prevent the processing of goods from being shifted to countries outside the EU, different arrangements are in place to process goods with a deferral or refund of import duties provided that the goods are being exported from the EU (Inward Processing Relief - IPR). Also, it is possible to use an arrangement where the imported goods are subject to the tariff rate applied to processed goods (Processing under Customs Control - PCC). This arrangement can, for instance, be beneficial for the pharmaceutical industry, where base materials on the one hand are subject to a 144

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relatively high import duty rate. The processed goods, on the other hand, are generally subject to a zero rate. Using the Outward Processing Relief (OPR), it is possible to have products from free circulation of the EU undergo processing or treatment in third countries and reimport these processed goods in the EU with a full or partial relief of import duties.

A.

Customs Value and Applicable Customs Rate

Import duties are calculated based on the customs value of the goods multiplied with the applicable tariff rate. The applicable tariff rate depends on the customs classification and the (preferential) origin of the goods.

In order to determine the customs value of goods imported into free circulation, several methods can be used, which have to be applied in sequential order. This means that one is allowed to use only a subsequent customs valuation method if the previous method cannot be applied. The most common valuation method is the transaction value of the goods. In this respect, the transaction value is defined as the price actually paid or payable for the goods when sold for export to the customs territory of the EU. It is noted that certain additions or deductions to the customs value used may have to be made depending on the circumstances of the case at hand. For valuation purposes, a ruling can be obtained from the Dutch customs authorities; this ruling is valid only in the Netherlands.

The tariff classification number determines the customs duty rate assessed on the importation, whether the goods are eligible for special duty privileges and whether these are subject to import restrictions (e.g., quota, anti-dumping or countervailing duties, or specific licenses). Failure to correctly classify imported articles can result in fines or penalties.

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anti-dumping or countervailing duties, etc.). The country of origin may be defined as the country in which imported products were grown, manufactured, or produced. While this may appear to be a simple concept, the rules related to country of origin are diverse and often complex. Certainty regarding the customs classification as well as the origin can be obtained by means of a “Binding Information,” valid throughout the EU.

B.

Customs Warehouses

A customs warehouse may either be a specific location (such as a tank, building or silo) or an inventory system authorized by and subject to the control of the customs authorities for the storage of noncommunity goods (so called “T-1 goods”). Only upon removal of the goods from the customs warehouse will the applicable import duties, VAT and excise duties become due. In the Netherlands, different types of customs warehouses exist. Each of the different types of warehouses is subject to administrative regulations and has its individual advantages.

A customs warehouse can be a public or a private warehouse. A public warehouse is authorized for use by warehouse keepers whose main business is the storage of goods deposited by other traders (depositors). A private warehouse is for the storage of goods deposited by an individual trader authorized to be a warehouse keeper. The warehouse keeper does not necessarily need to own the goods, but he must be the depositor.

Some customs warehousing arrangements also provide for a cash flow advantage for the payment of customs duties (e.g., payment of customs duties on a monthly basis rather than at the moment of importation).

It is noted that the customs warehousing arrangements in principle allow only the storage of goods. If approved by the customs authorities, certain usual activities are allowed with regard to the goods. These usual activities include actions to ensure the reasonable 146

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condition of the goods during storage and actions which prepare the goods for further distribution (e.g., repackaging). It is, however, not allowed to actively process or alter the goods while stored under customs warehouse arrangements. However, such processing is possible using the customs procedures IPR or PCC (see sub 4 below).

1.

Authorization

In order to set up and operate a customs warehouse, it is necessary to obtain authorization from customs authorities. The customs authorities may only authorize a customs warehouse under the following conditions: (a)

The applicant is established in the European Community.

(b)

The warehouse is intended primarily for the storage of goods.

(c)

There is a genuine economic need for the facility.

(d)

The applicant is able to comply with the conditions of authorization and has sufficient resources to oversee the setting up of the customs warehouse and to carry out the necessary checks on the control systems, the records and the goods stored.

The Dutch customs authorities will, contrary to customs authorities in other countries, verify in advance whether or not the aforementioned conditions are met. This upfront verification provides for certainty with respect to the application of the customs warehousing arrangements.

2.

Single (European) Authorization

Where entrepreneurs are established in several countries, EU customs regulations provide for a special “single authorization.” In respect of customs warehousing, this “single authorization” allows for the storage of goods in various EU Member States while only one Baker & McKenzie

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warehouse authorization is needed. Administrative records may be kept centrally (i.e., at one location) and only one customs administration has to be dealt with.

The prior agreement of the authorities concerned must be obtained in order to apply for a single authorization. The application should be submitted to the customs authorities designated for the place where the applicantâ&#x20AC;&#x2122;s main accounts are held and where at least part of the storage to be covered by the authorization is conducted. These customs authorities will communicate the application and the draft authorization to the customs authorities in the other EU Member States concerned.

The other Member States are given one month to reply and provide their input. If other customs administrations submit objections within that period and no agreement is reached, the application may be rejected. Once approved, the authorization will be issued and a copy of the agreed-on authorization will be sent to all the customs authorities concerned. As the other Member States included in the application need to be consulted, the applicant should apply at least two months before the intended start date of the customs warehouse authorization.

It is noted that the requirements/conditions for domestic authorization as described above apply accordingly. In general, a single authorization is granted only if the applicant is already authorized to operate a customs warehouse within its own Member State and the applicant has a proven/satisfactory record of operation.

C.

Other EU Customs Facilities

As outlined above, the customs legislation applicable in the Netherlands has also other customs facilities under which the levy of customs duties can be postponed or avoided. Below we have briefly addressed some of these facilities that can be of relevance when involved in international operations.

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As mentioned, the storage of goods under a customs warehousing arrangement in principle allows only the storage of goods. The Netherlands has several other customs facilities that prevent the levy of import duties in the event an entrepreneur wishes to actively process goods in or outside the EU. Below we have briefly addressed some of these customs facilities.

1.

Inward Processing Relief

Under a so-called Inward Processing Relief, goods (e.g., raw materials or semi-manufactured goods) can be imported into the EU to be processed for re-export without import duties and VAT on the importation of the goods. Strict (administrative) requirements have to be met, in order for the relief to be granted. Further, a bank guarantee is required and interest must be compensated for refined goods which are released into â&#x20AC;&#x153;free circulation.â&#x20AC;? There are two types of Inward Processing Relief: one allows the duty to be suspended, while the other allows duties to be initially paid and refunded at a later stage.

2.

Outward Processing Relief

Under this customs relief, goods which are already imported into the free circulation in the EU can be exported for processing in a third country (i.e., outside EU). Upon return of the processed goods to EU, a full or partial exemption for customs duties will then be granted. The advantage is that no or less import duties will have to be paid on the import of the treated goods. Again several (administrative) requirements have to be met in order for an Outward Processing Relief to be granted.

3.

Processing under Customs Control

In some cases, goods are imported into the Netherlands in order to be processed while these goods are under customs control. In case of processing under customs control, the goods may be processed into products which are subject to a lower duty rate before they are put into free circulation. The disadvantage of this method is that there are

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some economic conditions which have to be met. The administrative conditions are minor and cause a light compliance burden.

4.

Customs Bonded Transport

It is also possible that goods are transported through the EU under customs bond (so called “T-1 transport”). As a result of the transport under customs bond, no customs duties and import VAT have to be paid when the goods physically cross a border (see however sub 6 below). It should, however, be proved that all goods transported under customs bond are also declared to customs authorities upon arrival of the goods. If not, customs duties may become due as a result of irregularities while these goods are in transit.

D.

Authorized Economic Operator

In order to facilitate international trade and to enhance security, EU regulations now provide for the so-called “Authorized Economic Operator” (AEO) concept. The AEO trader may benefit from more lenient administrative requirements in respect of the import and export of goods from the EU. In order to qualify as an AEO, a trader has to demonstrate compliance with solid security criteria and controls as set by the EU regulations. AEO certified traders are listed in the EU commission database which is publicly accessible (http://ec.europa.eu/taxation_customs/dds/cgibin/aeoaeoquery?Lang=EN).

Reliable and compliant traders may benefit from simplifications in the customs procedures and from facilitation with regard to customs controls relating to safety and security. Secure AEO traders may further be informed that their consignment has been selected for controls and will get priority treatment for these controls.

Authorized AEO traders may also be allowed to submit less data with customs authorities and will likely be subject to fewer controls as they will be considered secure partners by customs and as their compliance and reliability will have been thoroughly checked when the AEO Certificate is given.

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There is no legal obligation to become recognized as AEO, although being recognized as such may constitute an added value for the operator, as it demonstrates compliance with solid security criteria and controls. This will provide a competitive advantage to participating companies.

E.

VAT and Excises

On importation of the goods, not only import duties are levied, but also VAT on importation and (if applicable) excises (excises are levied with respect to the (deemed) consumption of alcoholic beverages, tobacco products and mineral oils). At the same time, deferral of import duties may also result in deferral of excise duties and VAT on importation being levied.

VAT on importation in principle becomes due at the actual moment of import of the goods. The taxable base for VAT is the customs value to which certain amounts are added. Provided that certain conditions are met, an import license can be obtained as a result of which the import VAT can be reported through the periodic VAT return, rather than actual payment upon physical importation. This license can thus create a cash-flow advantage (the so-called â&#x20AC;&#x153;Article 23 deferment licenseâ&#x20AC;?).

The supply of goods which are placed under customs bond (e.g., stored in a customs bonded warehouse or transported under customs bond) in the Netherlands is subject to a zero rate for VAT purposes.

On importation, excise goods can also be brought into free circulation for excise purposes as a result of which excise duties become due as well. However, the levying of excise goods can, under certain circumstances, also be deferred. In that case, the excise goods remain under customs supervision using special excise bonded arrangements.

In principle, levying of excises takes place in the EU member state where the goods are used or consumed. Excise goods, which are not transferred using a deferral arrangement, are in principle subject to Dutch excise upon importation in the Netherlands. In the event the excise goods are, after importation, shipped to another EU member Baker & McKenzie

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state, the earlier paid Dutch excise duties can be refunded after payment of excise duties in the member state upon arrival thereof (and after showing proof of that payment to Dutch authorities).

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XVI. Investment Incentives The Dutch government and the authorities of the European Union grant incentives to encourage investment in new business activities, expansion of existing activities, research and development in respect of new technologies, and investment in regions with weaker economic structure. The incentives may take the form of financing credits or subsidies. Incentive schemes, conditions for awarding subsidies, and budgets are often amended, but professional guidance will help you discover the variety of funds and the beneficial opportunities offered by the EU organizations, State governments, and local authorities.

The anthology of subsidies described below offers an impression of the variety of funds available. It is always worthwhile to verify subsidy opportunities before making investments and when exporting to foreign countries. Our office has up-to-date information and contacts with the competent authorities and can offer you effective and sound advice.

A.

Accelerated depreciation and environmental investment incentives

1.

Tax Facilities (VAMIL/EIA/MIA)

Several tax facilities are granted. First of all, tax relief is granted in the form of random depreciation for specific investments (Willekeurige afschrijving milieu-bedrijfsmiddelen or VAMIL). These investments must be innovative, not commonly used in the Netherlands, and contribute to a better environment. Which investments qualify is determined by the Ministry of Housing, Spatial Planning and the Environment.

Secondly, the Energy Investment Relief (Energie-investeringsaftrek or EIA) grants a one-of tax deduction of 44% of the investment cost of an energy-efficient investment. Qualifying investments are determined by the Ministry of Economic Affairs.

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Lastly, the Environmental Investment Deduction (Milieuinvesteringsaftrek or MIA) also grants a one-of tax deduction of 40%, 30%, or 15%, depending on the nature of the investment, for investments in environmentally friendly assets. Qualifying investments are determined by the Ministry of Housing, Spatial Planning and the Environment.

To claim EIA or MIA, a request must be filed with the proper authorities in the year the investment is made. The EIA and MIA cannot coincide. However, it is possible that the VAMIL coincides with either the EIA or MIA, resulting in a maximum tax deduction of 144% of the original investment cost in one year.

2.

Temporary Tax Facility 2009/2010

To stimulate investment during the current economic situation it is allowed to fully depreciate certain investments made in 2009 in two years, 2009 and 2010 (50/50). In principle all assets qualify, except for certain assets such as intangibles, passenger cars, and real estate.

Assets that do qualify include delivery vans, trucks, computers, machines, and installations.

B.

Export Enhancing Credits

If you intend to export goods or services, it is generally advisable to contact the Foreign Trade Agency (Exportbevorderings- en Voorlichtingsdienst, or EVD) at the Ministry of Economic Affairs for information on foreign markets and export in general. The Dutch government has several special programs for the purpose of stimulating companiesâ&#x20AC;&#x2122; export activities. These programs provide financial support for export transactions. A selection of the export enhancing credits available is given below: 1.

PSB

The Program for New Exporters (Subsidieregeling Programma voor Starters op Buitenlandse Markten) was introduced in May 2000. This scheme was set up in order to offer support to new exporters in the 154

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small- and medium-sized business sectors (SME). New exporters are regarded as SMEs if the maximum number of employees does not exceed 100. The Ministry of Economic Affairs pays 50% of the costs incurred in relation to new export activities, up to a maximum of EUR 11,500. These costs may include advisory services and marketing research. Other expenses that are eligible for reimbursement under this program include the costs of expanding the companyâ&#x20AC;&#x2122;s know-how or knowledge on export and the costs of developing and producing presentation materials.

The program may also grant subsidies for hiring an export employee.

An export consultant from the Chamber of Commerce (Kamer van Koophandel) or an export-promoting umbrella organization will provide information about the conditions of this program and will determine whether the exporter is eligible for this subsidy.

Furthermore, this consultant will assist the exporter in setting up a targeted and specific internationalization export plan in order to be eligible for the subsidy. After this strategy has been approved, the exporter can implement this plan during an 18-month period. The government reserves a limited sum for the subsidy every year.

2.

2xplore

2xplore, the temporary subsidy program on feasibility studies (Tijdelijke Subsidie Haalbaarheidsstudies), supports feasibility and investment studies in the preliminary stage of a project. The program was set up in June 2009 in connection with the economic crisis and replaces the old Economic Cooperation Projects Program (Programma Economische Samenwerking Projecten or PESP), which was halted (as of 10 July 2008), due to research into the legal definition of the program. The 2xplore program is therefore quite comparable with the PESP program. 2xplore aims to increase the chance of obtaining export orders for Dutch companies and to promote bilateral economic cooperation. The program is intended for projects in countries other than highly industrialized Western nations, for instance all countries in Asia (except for Japan), Central and Eastern Europe (except for EU-member states), Africa, Latin Baker & McKenzie

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America, and the Middle East. Some restrictions may apply to UNsanctioned countries, depending on the nature of the sanctions.

In order to obtain the subsidy, the applicant must draft a short description of the project and the budget. The project cannot include market research and acquisition of individual companies. The Ministry of Economic Affairs pays 50% of the project costs, up to a maximum of EUR 125,000.

3.

EKV

The aim of the Export Credit Insurance (Export Kredietverzekering) is to promote Dutch exports. The Ministry of Finance provides a reinsurance facility that covers the non-payment risk of commercial export credit. The maximum percentage covered is 95%. Atradius Dutch State Business NV (“Atradius”) is the insurer. Atradius does not cover the risk of non-payment on export of capital goods to certain countries due to the high risk of, for instance, nationalization, war, and default. For that reason, the Ministry of Economic Affairs has created a Lease Facility for reinsurance against the risk of non-payment associated with export to those countries. The Dutch government issues a list of “high-risk countries” and the coverage possibilities for the EKV.

C.

Environmental Management and Energy Saving Incentives

In connection with the focus in the EU and in the Netherlands on environmental issues, an increasing number of subsidies are being made available for energy-saving and environmentally friendly projects. The European Commission has several programs for grants in the field of energy. The Competitiveness and Innovation framework Program took effect on 1 January 2007. A part of this program is the Intelligent Energy Europe (“IEE”) program that encourages the wider uptake of new and renewable energies and improves energy efficiency. The program is aimed at accelerating action in relation to the agreed-on EU strategy and targets in the field of sustainable 156

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energy, increasing the share of renewable energy and further reducing the final energy consumption.

The aim of the Dutch Subsidy Scheme for Environmental Technology (Subsidieregeling Milieugerichte Technologie: Subsidieprogramma Milieu en Technologie or SMT RMTMT) is to encourage companies to take measures to improve their environmental and energy management and to produce new environmental technology. Subsidies are granted for drafting recommendations regarding the possible measures to be taken to improve the environmental and energy aspects of a product or a production process. Each project is assessed on (1) whether it sets an example for others, (2) whether the technology is new, and (3) whether it benefits the environment.

D.

Patent Box/Innovation box: reduced corporate income tax rate

Qualifying income that results from endeavors in the field of research and development is taxed at an effective tax rate of only 5% (until 2010: 10%). Any income that is the immediate result of research and development activities undertaken for the account of the tax payer in the year 2007 and successive years will in principle benefit from this reduced rate. However, at least one of the following conditions must be met: â&#x20AC;˘

one or more patents have been granted to the tax payer and these patents are of material significance for the exploitation of the invention; or

â&#x20AC;˘

the tax payer benefited from the R&D Wage Tax Facility (which is further explained below) in connection with the R&D that was undertaken for the development of the invention.

The costs of R&D are immediately and fully deductible from the taxable profit and must be recovered first. The qualifying income is

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taxed at a 5% rate to the extent it exceeds the previously reported costs.

E.

Research and Development

The Dutch government provides incentives for research and development projects in, for example, information, biotechnologies, and environmental technologies. However, it is also possible to benefit from general R&D grants.

1.

Dutch R&D Wage Tax Facility (WBSO)

The Dutch R&D tax facility is enacted to encourage investment in R&D activities in the Netherlands. The R&D facility provides for a reduction in wage tax withheld from the salary of experts engaged in research and development in the Netherlands. This results in a decrease in R&D labor costs, which benefits the employer. The reduction for a given year is 28% of the average wages below EUR 150,000 and 14% of the wages in excess of that amount. The total annual reduction in wage tax is maximized at EUR 14,000,000. Selfemployed persons may request a reduction of their taxable profit of EUR 11,806 (2009). Qualifying R&D activities are awarded a socalled R&D declaration (S&O verklaring) by the Ministry of Economic Affairs. Such intangible assets may also benefit from the Patent/Innovation Box facility as described above.

Please note that the list of subsidies and facilities above is incomplete and subject to constant change. Unfortunately, it is impossible to provide all the specific terms and conditions of the subsidies and facilities described above. At your request, we would be happy to provide you with the most up-to-date information available.

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XVII. Financial Regulations A.

Exchange Control Regulations

No license or notification requirement applies to the making of payments in euro between residents and non-residents. However, pursuant to the 1994 Foreign Financial Relations Act (Wet financiële betrekkingen buitenland 1994) and the 2003 Reporting Provisions (Rapportagevoorschriften betalingsbalansrapportages 2003), certain designated residents are required to report specific foreign payment information to the Dutch Central Bank (De Nederlandsche Bank, “DNB”) on a regular basis. These reporting requirements are designed to enable DNB to establish the balance of payments of the Netherlands.

DNB has established certain specific institution profiles (e.g., banks, central securities depositaries, undertakings for collective investment).

The nature of the foreign payment information to be provided to DNB by a resident designated as reporting entity depends on the category of institution to which such resident belongs. The designation of a resident as “reporting institution” by DNB is based on certain criteria, e.g., international payment volume and frequency. DNB may also request specific information from resident institutions that have not been designated as reporting institutions. Pursuant to the 2003 Reporting Provisions, the so-called “Special Finance Companies” (Bijzondere Financiële Instellingen) that are incorporated or established in the Netherlands are subject to a (proactive) notification requirement within three weeks following their establishment or incorporation in the Netherlands. “Special Finance Companies” may also qualify as a “bank.” Please refer to section 3.1 titled “Banking activities” below in that respect.

B.

Capital/Loans

No license is required for the repatriation of capital, loans, interests, dividends, branch profits, royalties and fees as long as the requirements of the 2003 Reporting Provisions and 1994 Foreign Financial Relations Act are met.

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C.

Regulated Financial Activities

The Financial Supervision Act (Wet op het financieel toezicht, the “FSA”) took effect on 1 January 2007. The FSA encompasses practically all the rules and conditions that apply to Dutch financial markets and their supervision. In total, the FSA replaces eight former supervision acts, including the Dutch Banking Act, Securities Trade Supervision Act, and Insurance Undertakings Acts. The extensive system of supervision of financial institutions is therefore now regulated by one single act, supplemented by implementing regulations based thereon. Under the FSA, a distinction is made between the supervision tasks of DNB (prudential supervision) and those of the Autoriteit Financiële Markten (the “AFM”) (conduct of business supervision).

The description below does not intend to be exhaustive but rather aims to give a high-level overview of the most important activities regulated under the FSA. 1.

Banking activities

Under the FSA, any company obtaining “repayable funds” (opvorderbare gelden) in the Netherlands in the conduct of a business or profession outside a restricted circle from (legal) persons other than so-called “professional market parties” and granting loans for own account qualifies as a “bank.”

Under the FSA, any funds that must be repaid, for whatever legal reason, if it is clear beforehand what the nominal repayable amount is and in which manner any applicable compensation (such as interest) is to be calculated qualify as “repayable funds.” As the definition of “repayable funds” could entail more than just the borrowing of funds, caution must be exercised when assessing whether a company qualifies as a “bank.” For instance, it is possible that monetary obligations created in the context of complex financing structures which do not necessarily entail an obligation to repay borrowed moneys may nevertheless be considered as entailing attracting “repayable funds” in the context of the FSA. Similarly, having regard 160

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to the wide scope of the term “bank” under the FSA, certain “nonbanks” (such as a number of finance companies and cash-pooling hubs) may also qualify as “banks” within the meaning of the FSA. In most instances, finance companies operating exclusively within a group of companies do not qualify as “banks” (i.e., they operate within a “restricted circle”) and are therefore exempt from the aforesaid requirements of the FSA. Pursuant to the FSA, “professional market parties” include, inter alia, licensed financial undertakings (e.g., banks, investment firms, undertakings for collective investment) and large corporations.

A “restricted circle” is deemed to exist between persons and/or companies that belong to an objectively limited group, and the criteria for access thereto are determined in advance in order to restrict access.

In addition, a “restricted circle” presupposes and requires the existence of a legal relation between the person/company that attracts repayable funds and the persons/companies that provide such funds at the time the aforesaid funds are attracted. The legal relation implies that the “members” of such restricted circle must reasonably be aware of the financial situation of the person/company attracting the repayable funds.

Except where a general exemption applies, a license is required in order to conduct banking activities in the Netherlands. DNB may grant an individual dispensation in exceptional cases.

Without prejudice to the foregoing, article 3:7 of the FSA prohibits the use of the word “bank” in one’s company or trade name. A company may therefore not use the term “bank” in its company or trade name without the proper banking license and registration.

The Banking Directive (as amended) has introduced a scheme of mutual recognition within the European Economic Area (“EEA”), the so-called “European Passport.” Therefore, subject to prior notification to DNB and subject to the fulfilment of the relevant notification requirements, banks and financial institutions (see penultimate Baker & McKenzie

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paragraph of this section 3.1 below) established and licensed in a country of the EEA do not need to obtain a Dutch license in order to provide services in the Netherlands whether through branch offices or on a cross-border basis.

DNB closely supervises the administration, liquidity, and solvency of all Dutch banks. An exception is made for the supervision of the administration and solvency of Dutch branch offices of banks established and licensed in another EEA country. In such case, supervision remains with the banking authorities in the bank’s home country except that a branch office of an EEA (or a non-EEA bank) is subject to DNB’s supervision on liquidity. Dutch banks are generally involved in a wide range of financial activities, including (but not limited to): •

granting loans;

•

effecting domestic and international money transfers;

•

providing payment services;

•

exchanging foreign currency;

•

brokering publicly listed securities; and

•

acting as a listing agent and underwriter in the context of an application for admission to trading on NYSE Euronext Amsterdam N.V.

The FSA also regulates the activities of so-called “financial institutions” (financiële instellingen) in the Netherlands, i.e., companies whose main business is to perform one or more of the activities listed in Appendix I of Directive 2006/48/EC6 or to acquire 6

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These include the following activities: (i) acceptance of deposits and other repayable funds; (ii) lending; (iii) financial leasing; (iv) money transmission services; (v) issuing and administering means of payment (e.g., credit cards, Baker & McKenzie

or hold participating interests, but which do not qualify as a “bank” (as described above). EEA-based financial institutions that are authorized to act as such in their home state on the basis of a certificate of supervised status may rely on such certificate to provide the same services in the Netherlands (either via branch or crossborder), subject to prior notification to DNB. For non-EEA banks and financial institutions, a DNB license may be required, depending on the specific nature and scope of the services provided.

2.

Offering and admission to trading of securities

Pursuant to the FSA, it is forbidden to offer securities7 to the public in the Netherlands or to have securities admitted to trading on a regulated market (within the meaning of Directive 2004/39/EC) situated or operating in the Netherlands unless a prospectus is drafted in accordance with Directive 2003/71/EC (the “Prospectus Directive”). Such prospectus should be approved by the AFM or by travelers’ cheques, and bankers’ drafts); (vi) guarantees and commitments; (vii) trading for own account or for account of customers in: (a) money market instruments (cheques, bills of exchange, certificates of deposit, and similar instruments); (b) foreign exchange; (c) financial futures and options; (d) exchange and interest-rate instruments; and (e) transferable securities; (viii) participation in securities issues and the provision of services related to such issues; (ix) advice to undertakings on capital structure, industrial strategy and related questions and advice as well as services relating to mergers and the purchase of undertakings; (x) money broking; (xi) portfolio management and advice; (xii) safekeeping and administration of securities; (xiii) credit reference services; and (xiv) safe custody services.

7

Being: (i) tradable shares or other tradable securities or rights equivalent to tradable shares; (ii) tradable bonds or other forms of negotiable securitized debt; or (iii) other tradable securities issued by a legal person, company or institution through which securities meant under (i) or (ii) may be acquired by the performance of the rights pertaining thereto or by conversion or giving rise to money settlement.

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the relevant competent EEA supervisory authority (in which case prior notification to the AFM is required) prior to such offering or admission to trading. The implementing regulations promulgated pursuant to the FSA contain several grounds for exemption from the prospectus requirement (e.g., offerings of securities with a consideration lower than EUR 2.5 million, which limit shall be calculated over a period of twelve months, offerings targeting exclusively “qualified investors” [gekwalificeerde beleggers], offerings to less than one hundred [legal] persons in the Netherlands who are not “qualified investors,” offerings of securities with a minimum consideration per investor/minimum denomination per security of EUR 50,000). Once a prospectus has been approved by the competent supervisory authority of an EEA member state, a simple notification to the competent authority of another EEA member state is in principle sufficient in order for the issuer to be allowed to offer the securities at hand in such other member state.

3.

Public offers

Pursuant to the FSA, it is forbidden to make a public bid for securities that are listed on a regulated market in the Netherlands unless an offering document which must meet certain specific criteria is made available by the bidder in the Netherlands prior to such public offer.

The legislative proposal implementing Directive 2004/25/EC, which came into effect in the Netherlands on 28 October 2007, has also introduced a compulsory bid requirement for any (legal) person which, acting alone or in concert, acquires a participating interest of 30% in a public company whose shares are admitted to trade on a Dutch stock exchange.

4.

Investment services and markets in financial instruments

Investment firms (beleggingsondernemingen, e.g., brokers, dealers, “market-makers,” financial advisers and portfolio managers) must have a license to provide their services (referred to as “investment services”) in the Netherlands. To obtain such license, investment firms must comply with certain financial, administrative, and organizational requirements. The (daily) policymakers of investment firms must also 164

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pass certain reliability and solidity tests. The requirements that investment firms have to fulfil are quite elaborate. Investment firms are closely monitored by the AFM for compliance.

As a result of the implementation of the Markets in Financial Instruments Directive (“MiFID”) in the Netherlands as of 1 November 2007, commodity derivative contracts now fall within the scope of the definition of “financial instruments” under the FSA. Investment services provided in relation to these “new” types of financial instruments are therefore, inter alia, subject to the aforesaid license requirement.

Furthermore, investment firms are obliged to classify8 their clients in accordance with the MiFID rules prior to the provision of any investment services. Based on such classification, different regimes apply, notably in respect of the level of protection and pre-contractual information which should be given to clients. Pursuant to the new best execution rules introduced by the MiFID, investment firms are required to draft an execution policy describing, for each type of financial instruments, the procedures and arrangements they have in place with a view to providing best execution to their clients.

Under the MiFID rules, investment firms, including portfolio managers, must implement (and monitor regularly) adequate measures and procedures to prevent and manage conflicts of interest. Investment firms must inform their clients in respect of such measures and procedures. EEA-based investment firms holding a permit to offer their services in another member state may offer their services in the Netherlands after due notification to the AFM, either through a branch or “cross-border” (although most rules governing the conduct of business in the Netherlands will still apply to branches).

8

Clients may be classified as either “professional client,” “eligible counterparty,” or “non-professional client.”

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The operation of a regulated market or a Multilateral Trading Facility9 (“MTF”) in the Netherlands is also subject to a license requirement under the FSA. Licenses are granted by the Ministry of Finance.

Several NYSE Euronext entities10 as well as MTS Amsterdam N.V. and European Energy Derivatives Exchange N.V. currently hold a license to operate a regulated market in the Netherlands. In addition, the aforementioned NYSE Euronext entities hold a license to operate Alternext Amsterdam, which is the only MTF currently active in the Netherlands.

5.

Market abuse

The Market Abuse Directive has been fully implemented in the Netherlands. The AFM is responsible for enforcing the relevant provisions of the FSA, along with the Public Prosecution Service.

Pursuant to the FSA, it is forbidden to perform a transaction (or cause a transaction to be performed) in a listed (either in the Netherlands or in a regulated market in another EEA member state) security or related instrument in or from the Netherlands while possessing “inside information.” “Inside information” is information of a specific nature concerning the relevant issuer or trade in the relevant security which has not been published and, if published, may be expected to influence significantly the price of the relevant listed security (or related financial instruments), regardless of whether the price will likely go up or down. Issuers of listed securities are obliged to maintain and 9

“Multilateral trading facilities” are trading platforms operated by an investment firm or a market operator, which bring together multiple third-party buying and selling interests in financial instruments in the system in accordance with nondiscretionary rules, in a way that results in a contract. This is often referred to as “in-house matching.” As a result of the implementation of MiFID crossEU/EER, any entity holding a license to lawfully operate as a multilateral trading facility in a member state may use such license as a so-called “European passport.”

10

Including, inter alia, NYSE Euronext (International) B.V., NYSE Euronext (Holding) B.V., Euronext N.V., Euronext (Amsterdam) N.V.,and Endex European Energy Derivatives Exchange N.V..

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regularly update insider lists. It is also forbidden to manipulate a securities market (i.e., worldwide) on which securities that are also admitted to a regulated market in the Netherlands are traded.

6.

Major holdings disclosure

Chapter 5.3 of the FSA contains reporting requirements in respect of major holdings in Dutch public companies (i.e., the so-called N.V.’s) the shares of which are listed on an EU regulated market (“Issuing Institutions”). These include: 1.

reporting requirements applicable to Issuing Institutions themselves in respect of their issued share capital (e.g., reporting requirements for each change of 1% or more compared with previous notification);

2.

initial and ongoing reporting requirements for managing directors and supervisory directors of Issuing Institutions in respect of their voting rights and participating interest in both the Issuing Institution at hand and so-called “related Issuing Institutions”; and

3.

ongoing reporting requirements for shareholders and other persons holding a right to vote at the shareholders’ meeting of an Issuing Institution.

The scope of the overview below is limited to the reporting requirements listed under (c) above.

Pursuant to the FSA, any person or entity acquiring or losing control over shares in the issued capital of an Issuing Institution (the shares of which are listed on an EU regulated market) must report such change if it leads to a transgression of one of the thresholds laid down in the FSA. The following thresholds are currently applicable: 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%, 60%, 75%, and 95% (I suggest we add the percent symbol to each figure). The reporting requirements are applicable to changes in both the participating interest (i.e., shares) Baker & McKenzie

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one holds and the total number of votes one is entitled to cast at the general meeting of shareholders of an Issuing Institution.

The FSA contains a very elaborate regime for determining the entity obliged to disclose and calculating the relevant participating interests and/or total votes held. Article 5:45 of the FSA contains several general criteria based on which imputation of the participating interests and/or voting rights takes place. For example, in general terms, a parent company is deemed to hold both the participating interests and the voting rights held by its subsidiaries; a subsidiary is deemed not to hold any participating interests or voting rights. This rule may result in the parent company being obliged to aggregate and disclose different participating rights and/or votes held in the same Issuing Institution by different subsidiaries. Similarly, in principle, a person is deemed to indirectly hold the voting rights that a third party holds if such person has entered into a durable (i.e., for more than one shareholdersâ&#x20AC;&#x2122; meeting) voting agreement with such third party (and vice versa). The obligation to report changes also applies to indirect control held through (security) interests (e.g., right of pledge, right of usufruct).

Article 5:45 of the FSA also contains specific provisions with regard to participating interests and votes held by undertakings for collective investment and/or their management companies. In certain cases, (temporary) exemptions may apply. The disclosure of major holdings in listed companies is enforced by the AFM. It is to be noted that two legislative proposals introducing new disclosure and transparency requirements are currently pending at the Dutch Lower House. If said proposals were to be adopted in their current form, Issuing Institutions would become subject to new transparency obligations prior to the convening of a general meeting of shareholders. In particular, Issuing Institutions would be obliged to publish on their website any draft resolution and any draft proposal legally submitted by a shareholder that is subject to voting during a forthcoming general meeting. Similarly, Issuing Institutions would become subject to an ongoing obligation to disclose their strategy (and 168

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any change in it) on their website. Following the holding of a general meeting, Issuing Institutions would be obliged to publish the outcome of the voting on their website.

In addition, it is contemplated that a new threshold of 3 percent for the disclosure of major holdings in Issuing Institutions be introduced. In addition, when reporting a major holding in an Issuing Institution for the first time, shareholders would be subject to an obligation to also disclose their intention as to the strategy followed by the relevant Issuing Institutions. Three options will be available. The first option (“no objection to the current strategy”) is intended for shareholders that do not intend to undertake concrete steps to influence the strategy, regardless of whether they actively support it or simply do not object to it. The second option (“objection to the current strategy”) is reserved for shareholders that intend to actually use their shareholder’s rights in order to influence the strategy. A similar disclosure obligation would be applicable in the event of a change in the shareholder’s view concerning an Issuing Institution strategy.

The explanatory note to the legislative proposals does not reveal when the new rules will come into force although generally it is expected that this will take place in 2010.

7.

Undertakings for collective investment

Pursuant to the FSA, participation rights in an undertaking for collective investment may be offered in the Netherlands only if (the management company of) such undertaking has been granted a license by the AFM. An undertaking for collective investment is an investment company or a unit trust that solicits or obtains moneys or other goods for collective investment in order to allow the holders of participation rights to share in the returns of such investment.

A license to operate as (management company of an) undertaking for collective investment in or from the Netherlands may be obtained from the AFM if certain financial, administrative, organizational, reliability, and solidity criteria are met. An exemption from this Baker & McKenzie

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licensing requirement applies if, for example, the participation rights are exclusively offered to, and any moneys or goods are obtained exclusively from, “qualified investors” as defined in the FSA or if such offer targets less than one hundred investors in the Netherlands, not being “qualified investors.” An exemption may also apply to venture capital companies (participatiemaatschappijen).

Subject to prior notification to the AFM, (management companies of) so-called “Undertakings for Collective Investments in Transferable Securities” (“UCITS”) incorporated and duly licensed as such in a member state of the EEA may offer their participation rights in the Netherlands, either on a cross-border basis or via a Netherlands branch. The AFM maintains a special foreign UCITS register.

Pursuant to the FSA, undertakings for collective investment (that are not UCITS) that have their seat and are under actual supervision in a country where (according to the Dutch Minister of Finance) “adequate” supervision is exercised (including currently, albeit subject to change: France, Guernsey, Ireland, Jersey, Luxembourg, Malta, the United Kingdom and the United States of America) are subject to a somewhat lenient regime. This specific regime applies only to undertakings that are not subject to any limitations in their home country as to the type of investors they may target (for instance: professional investors only). Subject to this limitation, undertakings for collective investment based in one of the aforementioned countries may offer their participation rights in the Netherlands subject to prior notification to the AFM. Such notification must be accompanied by a so-called “certificate of supervised status” issued by the regulator of the relevant country. The AFM may deny access to the Dutch markets if either the contemplated offering or the distribution channel contemplated is inconsistent with any applicable Dutch statutory provisions. If market access is granted to an undertaking for collective investment based in one of the aforementioned countries, such undertaking will be subject to (most of) the conduct of business and prudential supervision rules laid down under and pursuant to the FSA. The register of the AFM contains details of “adequately supervised”

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undertakings for collective investment that have been authorized to perform their activities in the Netherlands.

8.

Other regulated activities

In short, the FSA also regulates, among other things, the following activities/entities: 1.

insurance and reinsurance activities (including (re)insurance intermediation and advising on insurance-related products);

2.

offering, advising, and intermediation in respect of individual investment objects;

3.

offering, advising, and intermediation in respect of financial products to consumers (in most cases) in the Netherlands;

4.

advertisements in respect of financial products in the Netherlands;

5.

recognition and operation of securities exchanges in the Netherlands;

6.

clearing institutions (i.e., entities whose business is to conclude contracts regarding financial instruments with a central counterparty that acts as an exclusive counterparty in respect of these contracts, of which the provisions indicating the essence of the performance correspond to the provisions forming part of contracts concluded by third parties or by the party itself in its capacity as a party to the contract, on a market in financial instruments, and indicate the essence of the performance in the latter contracts);

7.

payment services providers; and

8.

acquisition of a qualified holding (i.e., 10% or more) in a bank, collective investment scheme management company,

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UCITS, investment firm or insurer established in the Netherlands.

D.

Money Laundering

Pursuant to the Prevention of Money-Laundering and Financing of Terrorism Act (Wet ter voorkoming van witwassen en financiering van terrorisme, the “Wwft”), certain Netherlands-based institutions providing services that are deemed “sensitive” to money laundering or terrorism financing activities on a professional basis (e.g., banks and brokers, credit card companies, money transfer offices) or other services involving, inter alia, the sale, or mediation in the sale, of means of transport, precious stones and metals, objects of art, antiquities, jewels and other precious objects to be designated by governmental decree must report “unusual” transactions to the Financial Intelligence Unit Nederland (FIU-Nederland), including certain relevant details concerning the allegedly “unusual” transaction.

This includes, to the extent possible, the identity of the ultimate beneficiary owner of the transaction. Similar requirements apply to certain other professionals, including attorneys, notaries and tax advisors. The Dutch Ministry of Justice has established certain specific objective indicators to enable service providers to assess whether a transaction must be deemed “unusual” and hence reported.

In addition to these specific indicators, a more general reporting ground applies in the event that there are reasons to suspect that the transaction is requested in relation to money laundering or the financing of terrorist activities.

Without prejudice to the above, the aforesaid institutions and certain professionals (such as attorneys, notaries and tax advisers) must also establish and verify the identity of a client prior to the establishment of the business relation with a given client or the provision of incidental services involving a certain amount. In certain cases, the identity of the ultimate beneficiary of the transaction must also be established and verified. Specific rules (“enhanced client investigation”) apply if a prospective client is a so-called “politically exposed person” and in the event of suspicion that a prospective client 172

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is involved in money laundering or terrorism financing activities (e.g., high-risk sector, unusual requests, patterns). Furthermore, these institutions and professionals must, to the extent possible, monitor the business relationship with their clients on an ongoing basis. For instance, a new (enhanced) client investigation must be performed in the event of doubts as to the veracity and adequacy of the data provided by a client or if the information provided by a client with respect to (for instance) its alleged activities is not consistent with an institutionâ&#x20AC;&#x2122;s increased knowledge of a client.

Under the Wwft, the client investigation is in most instances principlebased, i.e., the service provider has a certain margin of appreciation as to how the client investigation should be performed.

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XVIII. Competition Rules and Free Movement of Goods A.

Competition Rules

The EC competition rules provided in Articles 81 and 82 of the EC Treaty have direct effect in the Netherlands. Individuals can therefore invoke these articles before the Dutch courts and the courts are obliged to apply them.

Article 81(1) of the EC Treaty prohibits agreements and concerted practices between undertakings (natural or legal persons) the object or effect of which is to prevent, restrict, or distort competition in the European Union (EU) and which may affect trade between EU Member States.

Such restrictive agreements or practices may, however, benefit from an exemption pursuant to Article 81(3). This exemption applies if the agreement or practice improves the production or distribution of goods or services, or promotes technical or economic progress, while allowing consumers a fair share of the resulting benefit, provided that the agreement neither imposes restrictions that are not indispensable to the attainment of these goals, nor affords the parties the opportunity to eliminate competition in respect of a substantial part of the products or service in question.

Whether a certain agreement or practice satisfies these conditions for exemption has to be determined by means of self-assessment. To facilitate this self-assessment, the Commission provides guidance through notices and procedural regulations.

In addition, the Commission has adopted the so-called Block Exemption Regulations that automatically exempt certain categories of agreements. EC Block Exemption Regulations currently exist in relation to, inter alia, technology transfer agreements, motor vehicle distribution, specialization agreements, research and development agreements, as well as other agreements in specific sectors, such as 174

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the insurance sector and the transport sector. All Regulations have direct effect and are directly applicable in the Netherlands.

An important EC Block Exemption Regulation is that for vertical agreements. In principle, the Regulation automatically exempts from Article 81(1) of the EC Treaty vertical agreements for the purchase or sale of goods and services, provided that the supplierâ&#x20AC;&#x2122;s market share does not exceed 30% and the agreement concerned does not contain any â&#x20AC;&#x153;hard core provisionâ&#x20AC;?.

Typical hard core restrictions are fixed and minimum resale price maintenance, absolute territorial restrictions, and absolute customer restrictions. Agreements exceeding the 30% market share threshold are not eligible for automatic exemption, but may still be exempt pursuant to Article 81(3) following an individual self-assessment.

Non-competition restrictions imposed on a purchaser in a vertical agreement are generally required not to exceed five years. The current EC Block Exemption Regulation on vertical restraints is due to expire on 31 May 2010 and will be replaced by a new, amended Block Exemption Regulation.

Article 82 of the EC Treaty provides that any abuse of a dominant position by one or more undertakings within the EU (or a substantial part of it) is prohibited if trade between EU Member States may be affected. Illustrations of possible abusive behavior are excessive pricing (whether low or high), fidelity rebates, and discriminatory practices.

Upon infringement of the Article 81 or Article 82 prohibition, the European Commission is empowered to impose fines of up to 10% of the worldwide group turnover of undertakings involved.

The EC Merger Regulation, which gives the European Commission control over mergers and acquisitions, as well as certain types of joint ventures, with a Community dimension is also directly applicable in the Netherlands. If certain monetary thresholds are met, a transaction is considered to have a Community dimension and prior notification Baker & McKenzie

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and clearance of such transaction is mandatory in the EU. Transactions that fail to meet the monetary thresholds of the EC Merger Regulation may still be caught by the local merger control regimes of Member States.

B.

Dutch Competition Act

The Dutch Competition Act (Mededingingswet) took effect on 1 January 1998. The Dutch Competition Act implements a prohibition system virtually identical to that of Articles 81 and 82 of the EC Treaty.

Article 6(1) of the Competition Act contains a general prohibition against restrictive agreements or practices whether of a horizontal or a vertical nature, provided that the de minimis thresholds are exceeded.

Agreements or practices that violate the prohibition are void.

Moreover, parties to such an agreement or practice run the risk of fines of up to EUR 450,000 or 10% of the worldwide group turnover of the undertakings concerned, whichever is higher.

The Competition Act contains a de minimis exception. The general prohibition contained in Article 6 of the Act will not apply to cases involving a maximum of eight companies with a combined turnover of not more than EUR 5.5 million in the case of goods and EUR 1.1 million in all other cases, such as the provision of services. Similarly, the prohibition contained in Article 6 of the Act will not apply if (i) the combined market share of the companies involved is not more than 5% on any of the relevant markets that are influenced by the agreement, decision or concerted practice; and (ii) the combined turnover of the companies with regard to the relevant goods or services was not more than EUR 40 million in the previous calendar year.

Similar to Article 81 of the EC Treaty, agreements or practices prohibited under Article 6(1) of the Competition Act may, under certain conditions, be exempt. Whether a certain agreement or practice satisfies these conditions for exemption has to be determined by 176

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means of self-assessment. As previously stated in paragraph 1 above, the European Commission has provided guidance for this selfassessment through a set of notices.

Under the Competition Act, present and future EC Block Exemption Regulations apply directly in the Netherlands. Any agreement benefiting from exemption under an EC Block Exemption Regulation is automatically exempt. Present and future EC Block Exemption Regulations also apply to purely Dutch restrictive agreements, as a practical result of which the EC Block Exemption Regulations have remained the most relevant documents to scrutinize any and all commercial agreements.

In addition, there are specific Dutch block exemptions for certain exclusivity arrangements relating to shopping malls and promotional pricing campaigns.

The Competition Act further prohibits abuse of a dominant position by one or more undertakings. Generally, this principle also applies to undertakings or governmental bodies entrusted with the operation of services of a general economic interest, as is similarly outlined in Article 82 of the EC Treaty.

The Competition Act also provides for a system of prior merger control. In order to fall within the ambit of the Dutch merger control provisions, the proposed concentration (i.e., merger, joint venture, or takeover) must meet the following threshold: the undertakings concerned must together, generate a total worldwide turnover of at least EUR 113.45 million in the previous calendar year, of which at least EUR 30 million must have been generated in the Netherlands by each of at least two of the undertakings concerned in the previous calendar year. Different thresholds apply to the banking and the insurance sectors, as well as to certain care institutions.

However, the Dutch Competition Authority (Nederlandse Mededingingsautoriteit, NMa) does not have to be notified of a concentration if it falls within the jurisdiction of the European Baker & McKenzie

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Commission (the “one-stop-shopping” principle). The EC Merger Regulation enables firms that are involved in a concentration over which the Commission does not have automatic jurisdiction to benefit from one-stop shopping. If the transaction has to be notified in three or more Member States, it is possible for the parties involved to request that only the Commission review the transaction, and not the individual national competition authorities.

The parties to the concentration are free to decide when to notify a merger, but the proposed merger is not allowed to be implemented until four weeks after formal notification (Phase 1). Within the fourweek period, the NMa will inform the notifying parties as to whether a license is required. If the NMa fails to notify the parties within this period, the proposed concentration will be deemed approved. If the NMa decides within the four-week period that no license is required, the parties are free to implement the transaction.

The NMa may decide that a license is required if it has reason to believe that the concentration will significantly restrict effective competition in the Dutch market or a part thereof, especially as a result of the creation or strengthening of a dominant position. Without that license, the concentration may not be realized and the parties will need to file a separate notification (Phase 2). Within 13 weeks, and upon closer examination, the NMa will either grant or refuse the license. The license will not be granted if the concentration is seen to significantly restrict effective competition in the Dutch market or a part thereof, especially as a result of the creation or strengthening of a dominant position.

The Dutch Minister of Economic Affairs has the power to ultimately decide whether to approve a concentration, thereby overruling the NMa’s refusal, if he believes that overriding social interests are involved.

The NMa has the power to impose fines of up to EUR 450,000 or 10% of a company’s worldwide group turnover (whichever is higher), if the parties fail to notify a notifiable concentration. The fine for 178

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withholding information or providing inaccurate or misleading information to the authorities will amount to a maximum of EUR 450,000 or to 1% of the company’s worldwide group turnover. For infringements of the prohibition against restrictive agreements or abuse of a dominant position, the NMa has the power to impose fines of up to EUR 450,000 or 10% of the worldwide group turnover of the undertakings concerned, whichever is higher.

Since 1 October 2007, the NMa can also fine natural persons for giving instructions or exercising de facto leadership with regard to an infringement of the Dutch Competition Act. The maximum fine that can be imposed on a natural person is EUR 450,000.

C.

Public Procurement Rules

Dutch public procurement law mainly consists of legislation implementing the EC Public Procurement Directives, although there are some purely national regulations which contracting authorities are either allowed or obliged to apply. The Framework Procurement Act (Raamwet EEG-voorschriften aanbestedingen) provides the legal basis for the two Decrees implementing the EC Directives: •

Decree on Public Procurement (Besluit Aanbestedingsregels voor Overheidsopdrachten), which implements the “Classic” Directive (regarding services, works, and supplies); and

•

Decree on Public Procurement in Special Sectors (Besluit Aanbestedingen Speciale Sectoren), which implements the Utilities Directive.

These two Decrees entered into force on 1 December 2005.

1.

Main principles

Dutch public procurement law is based on four main principles: •

adequate advertising by contracting authorities when procuring public contracts exceeding certain threshold values;

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•

banning the use of technical specifications favoring or eliminating certain undertakings;

•

applying objective criteria for the participation in – and the award of – public contracts; and

•

general principles of good administration.

The first three principles are corollary to the general principles of procurement law, such as non-discrimination, objectivity, and transparency. On the basis of Dutch and EC case law, contracting authorities always have to comply with the general principles of good administration and principles of procurement law, regardless of whether the Framework Procurement Act applies to the procurement of a certain contract.

2.

Contracting authorities

Public procurement rules apply to “contracting authorities”, which include the state, regional or local authorities, bodies governed by public law, or associations formed by one or several of such authorities (jointly referred to as “public authorities”). The definition of “state” is given a functional interpretation, rather than a formal approach. Over a thousand entities in the Netherlands qualify as public authorities that have to adhere to the Framework Procurement Act. As far as the utilities sector is concerned, contracting authorities are defined as public authorities or public undertakings exercising certain activities in the utilities field. Private companies operating on the basis of special or exclusive rights may, however, also be covered by the Framework Procurement Act. 3.

Award procedures

Award procedures include the following: •

open procedure;

•

restricted procedure;

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•

negotiated procedure; and

•

competitive dialogue.

All interested contractors, suppliers, or service providers may submit tenders under the open procedure. If the restricted procedure is followed, only those contractors, suppliers, or service providers that have been invited may submit tenders. If the negotiated procedure is followed (which can only be done in a limited number of specified circumstances), contracting authorities may consult contractors, suppliers, or service providers of their choice and negotiate the terms of contract with one or more of them. Finally, the EC Directives also introduced the competitive dialogue procedure, which is copied in the Dutch legal system.

4.

Selection criteria

Qualitative selection criteria relate to the tenderer rather than to the contract. Criteria for qualitative selection relate to the company’s financial and economic standing on the one hand and to the tenderer’s technical knowledge or ability on the other hand.

5.

Award criteria

Public contracts can be awarded either to the tender with the lowest price or to the tender that is economically most advantageous. When the contract is awarded to the economically most advantageous tender, various criteria, including price, running costs and technical merit can be taken into account.

6.

Advertising

Advertising rules oblige contracting authorities to send notices to the Office for Official Publications of the EC in Luxembourg. The content of notices may differ and there are various publication requirements.

Notices can or must take the form of indicative notices (when the budgetary year begins), calls for tenders, design contest notices,

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notices on the existence of a qualification system, or notices on the contracts awarded.

Voluntary use of advertising possibilities for contracts, which fall outside the scope of the Framework Procurement Act, is allowed. On a regular basis, notices are also published in the Official Gazette (Staatscourant) and Cobouw, a newspaper for the construction industry. The Dutch government promotes electronic procurement (for instance, through the Internet).

Finally, Dutch and EC case law requires compliance with the general principles of procurement law and proper government. This entails, inter alia, that the contracting authority should always exercise a proper level of transparency while procuring contracts.

7.

Time limits

Time limits for the receipt of requests or tenders may be fixed by contracting authorities, but may not be more restrictive than those indicated in the EC Directives. If urgency renders the time limit impracticable, these may be reduced.

D.

Import and Export: Free Movement of Goods

Trade to and from the Netherlands (like trade to and from any other EU Member State) is subject to the rules on the free movement of goods. Articles 28 to 31 of the EC Treaty provide that all measures that tend to restrict imports from or exports to other EU Member States are prohibited. Such restrictions can be justified only in exceptional cases, e.g., for reasons of public security, the protection of health and lives of human beings, animals or plants, or the protection of industrial and commercial property.

The general rule is that any product that has been legally manufactured and marketed in another EU Member State should be allowed to circulate freely within the Netherlands, and vice versa.

Articles 28 to 31 of the EC Treaty have a direct effect in the Netherlands and can be invoked before Dutch courts. With regard to 182

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trade between the Netherlands and other EU Member States, all customs duties have been abolished.

The common EU customs tariff rate applies to trade between the Netherlands and non-EU countries. In addition, the European Commissionâ&#x20AC;&#x2122;s import and export regulations for trade with non-EU countries must be observed. Depending on the country of origin or the destination of a product or the type of goods (e.g., dual-use or strategic goods), import or export licenses may be required.

Additional controls exist for certain goods, such as livestock or chemicals.

E.

The European Economic Area

The European Economic Area (EEA) Agreement took effect on 1 January 1994. The EEA consists of the 27 EU Member States11 plus Iceland, Norway, and Liechtenstein. The EEA Agreement provides for a set of competition rules, which are virtually identical to the EC competition rules. In addition, the free movement of goods rules mentioned above also apply to goods of EEA origin.

F.

Standardization

One of the objectives of the Community is to eliminate technical barriers to trade and to promote the use of European standards. In furtherance of this aim, a considerable number of EC Directives have been enacted to harmonize technical and safety requirements, and have been implemented in the Netherlands and in other Member States, as well. These Directives relate to the lawful marketability of a variety of products, such as machinery, toys, and medical devices.

Products that are produced in conformity with European standards are 11

Member States:Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden, and the United Kingdom.

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presumed to be in conformity with the EC Directives on Technical Harmonization. Products that comply with those Directives are required to carry the CE mark and can be freely marketed throughout the European Union.

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XIX. Intellectual Property A.

Patents

Patents filed on the basis of extensive research can be registered in the Netherlands for a period of 20 years. As of June 2008, it is no longer possible to file for short-term patents (with a validity of six years), as these patents create too many legal insecurities due to the lack of extensive research as part of the application procedure. Applications for a Dutch patent must be submitted to the Industrial Property Office (Bureau voor de Industriële Eigendom) in Rijswijk, the Netherlands.

As of June 2008, the description of the patent application may be filed in the English language. The conclusion thereof, however, still needs to be filed in the Dutch language.

The owner of a patent may grant licenses to third parties for the use of its patent. If it is considered necessary for the public interest, or if the patent is not adequately used in the Netherlands within three years after its rights are granted, the owner can be compelled to grant a license. Compulsory licensing can also be enforced if there is a certain level of dependency between an existing patent and the application for which the license has been requested, if it contains an important new technology.

The Dutch Supreme Court gave way to cross-border relief in multijurisdictional patent infringement cases in 1989 in its Lincoln v.

Interlas judgment. Since then, Dutch courts have allowed for crossborder injunctions in numerous instances. The possibilities for obtaining cross-border injunctions have been restricted lately. The Court of Appeal in The Hague in its decision of 1998 EGP/Boston Scientific required the Dutch defendant to be the “the spider-in-theweb,” i.e., the company determining the policy with respect to all companies involved in the allegedly infringing act in other EU countries where the cross-border injunctions were sought. Recent European case laws (European Court of Justice in 2006 in its decisions Gat/Luk and Roche/Primus) have further restricted the possibilities to obtain cross-border injunctions.

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The Netherlands is a party to the (1975) Treaty of Paris for the Protection of Industrial Property, the (1973) European Patent Convention, the (1970) Patent Cooperation Treaty, and the (1963) Strasbourg Convention.

Applications for a European patent can be filed with the European Patent Office in Munich, Germany, or with its subdivision in Rijswijk, the Netherlands.

B.

Copyright

There are no formalities required to obtain copyright protection. A work qualifies for copyright protection if it has an “original and personal character”. Therefore, copyrightable works made or published in most countries of the world will likewise be protected under the Dutch 1912 Copyright Act (Auteurswet 1912). Copyright protection continues for 70 years after the death of the author or, in some cases, after the publication of the work. The Netherlands is a party to the 1886 Bern Convention on the protection of literary and artistic works and the 1952 Universal Copyright Convention.

The Dutch 1912 Copyright Act has been amended to implement the European Directive of 22 May 2001 on the harmonization of certain aspects of copyrights and related rights in the Information Society (the “Copyright Directive”). The amended Dutch Copyright Act entered into force on 1 September 2004. The Copyright Directive introduces a reproduction right, a right of communication to the public, and a distribution right. Further to the implementation of the Copyright Directive, the Dutch 1912 Copyright Act has introduced new exceptions and limitations, such as the exception of use for purposes of caricature, parody, or pastiche. Furthermore, new provisions with respect to the protection of technological measures and rights management information have been included in the amended Dutch 1912 Copyright Act. As a result of Directive (EC) 2001/84 of 27 September 2001 on “droit de suite,” the Dutch Copyright Act has recently been amended to 186

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introduce a right of remuneration for the original author on further sale of an original work (â&#x20AC;&#x153;droit the suiteâ&#x20AC;?).

Likewise, the Netherlands is one of the few European Union Member States to protect non-original works, such as phone books, timetables, and other collections of data, provided that they are meant to be made available to the public. However, the scope of protection is limited.

C.

Neighboring rights

Performing artists, producers of sound recordings, and broadcasting companies can claim neighboring rights that are related to copyrights under the Dutch 1993 Neighboring Rights Act (Wet op de naburige rechten). Registration is not required. Neighboring rights may be exercised for a period of 50 years after the 1st of January of the year following the year of the initial performance. Further to the implementation of the Copyright Directive, the Dutch 1993 Neighboring Rights Act has also been amended.

D.

Protection of Databases

Apart from protection under Dutch copyright law, databases have obtained sui generis protection further to the implementation into Dutch law of the European Directive 96/9 of 11 March 1996 on the legal protection of databases. The producer of a database is granted exclusive rights to prevent extraction and/or reutilization of the whole or a substantial part, if the database shows that there has been a qualitatively and/or quantitatively substantial investment in obtaining, verifying, or presenting the contents. The rights run from the date of completion of the database and will expire 15 years from the 1st of January of the year following the date of completion.

In its judgment in 2004 in the British Horseracing Board v. William Hill case, the European Court of Justice limited the scope of costs involved that can contribute to qualifying an investment as substantial.

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extracted or reutilized data is of no importance with regard to the infringement question.

E.

Trademarks

Belgium, the Netherlands, and Luxembourg, forming together the Benelux region, have had a uniform trademark protection law since 1971. The EC Trademarks Directive 89/104 of 21 December 1988 has been implemented in the Benelux Trademarks Act. On 1 September 2006 the Benelux Trademarks Act and the Benelux Designs and Models Act were merged into the Benelux Treaty for Intellectual Property.

In principle, trademark owners can oppose the use or registration of a younger sign that is identical and is used for identical goods or services. Furthermore, trademark owners can oppose the use and/or registration of an identical or similar younger sign that is used for identical or similar goods or services if there exists a likelihood of confusion.

If an identical or similar trademark has been filed for similar or dissimilar goods or services, a trademark owner can, in principle, oppose the use of the younger sign if its existing registration is well known in the Benelux countries and if the use of the younger sign takes unfair advantage of, or is detrimental to, the distinctive character or reputation of the existing trademark.

In addition, a trademark owner can oppose the use of a younger sign if it is used in any way other than to distinguish goods and such use, without a valid reason, takes unfair advantage of, or is detrimental to, the distinctive character or reputation of the existing trademark.

To acquire protection, a trademark has to be registered with the Benelux Office for Intellectual Property in The Hague, in accordance with the Benelux Treaty for Intellectual Property. In principle, words, symbols, colors, three-dimensional shapes (of a product or packaging), and sounds that distinguish goods or services can be 188

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registered as trademarks. The Benelux Office for Intellectual Property may refuse signs that are not distinctive, are misleading, or are in violation of public order. Unregistered trademarks are, in principle, not protected. A trademark registration is valid for 10 years and can be renewed for another 10 years. It is also possible to register collective trademarks. The said trademarks distinguish certain collective characteristics of goods and services (e.g., seals of approval, logos for the environment), rather than distinguish the goods and services themselves.

Since 1 January 2004, the Benelux countries have introduced an opposition procedure, which allows trademark owners to oppose an application for registration of a conflicting sign with the Benelux Office for Intellectual Property. The goal of the opposition is to obtain clarity at an early stage whether a trademark can be registered or not.

Furthermore, the new rules are meant to encourage parties to reach an amicable settlement whenever possible. As of January 2006, oppositions may be lodged against new trademarks filed for goods and services in all classes.

It is also possible to apply for a European Community Trademark registration, which covers all the Member States of the European Union. Trademark attorneys can file applications in any EU country.

On 1 May 2004 the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia, and the Slovak Republic joined the EU. Trademark protection of existing European Community Trademarks has been extended to these countries automatically and without cost. Owners of older national trademark rights in one of the new Member States can file an opposition against an allegedly conflicting European Community Trademark but only if the same was filed between 1 November 2003 and 30 April 2004.

Romania and Bulgaria joined the EU on 1 January 2007. Community trademark applications filed between 1 July 2006 and 1 December 2006 can be subject to oppositions based on earlier rights in these new Member States.

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The Netherlands is also a party to the Madrid Convention and the Madrid Protocol (“the Madrid System”), which makes it possible for persons or legal entities with a real and effective industrial or commercial establishment in a country that is a party to the Madrid System, and for persons or legal entities with domicile or a registered seat in an EU Member State, to extend a Benelux trademark registration to another Member State and vice versa. In general, the main advantage of international registration is that it is cheaper than filing individual national applications for registration. The disadvantage of international trademark registration is that it automatically lapses or is cancelled in all Member States if the national application/registration on which the international registration is based, lapses or is cancelled within five years after the international registration.

Countries that are party to the Madrid System and/or the Paris Treaty can claim priority rights within six months after the application date of the first registration. With Global IP Manager (“GIPM”) Baker & McKenzie can provide web-based worldwide trademark portfolio management services. GIPM enables our clients to review instantly online, all IP matters being handled by Baker & McKenzie. Organized by country, legal action, or structured according to brand categories, GIPM replaces the need for in-house attorneys to trace information on the status of pending applications or current contentious matters.

F.

Designs and Models

The provisions of the Benelux Treaty for Intellectual Property protect registered designs and models for functional products, i.e., features of shape, ornaments, or patterns. Applications for registration are filed with the Benelux Office for Intellectual Property or with the International Bureau for the Protection of Industrial Property, in the case of international applications.

Novelty and having a “distinctive character” are conditions for protection, but originality of design is not required. Nevertheless, a design is still considered new if it has been made public for the first 190

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time within 12 months before the filing. Pursuant to EC Directive 98/71 of 13 October 1998 (European Directive on the Legal Protection of Designs), the Benelux Designs and Models Act was amended and came into force on 1 December 2003. As a result, the possibilities of taking action against design infringements on the basis of unfair competition (tort) have been broadened. The Benelux Designs and Models Act was merged into the Benelux Treaty for Intellectual Property on 1 September 2006. The term of protection (five years) can be extended four times, for a maximum total of 25 years.

As a result of EC Council Regulation 6/2002 of 12 December 2001 on Community Designs, a new and separate system has been created for the protection of designs in the European Community. This system also incorporates an Unregistered Community Design right, which provides protection for three years from the day the product incorporating the design is made available to the public in the EU. This design right, granted by law without formalities and free of charge, has been available since 6 March 2002. It only allows the owner to oppose the use of identical designs, whereas the Registered Community Design right entitles the owner to also oppose the use of designs that produce a similar impression. The latter right provides protection for a five-year period, which can be renewed four times (a total of 25 years of protection). Applications for this right are to be filed with the Office for Harmonization in the Internal Market (OHIM) of the EU. The OHIM began accepting applications on 1 January 2003.

The Netherlands is a party to the The Hague Agreement for the International Registration of Designs and Models. This agreement makes it possible to apply for â&#x20AC;&#x153;international registrationâ&#x20AC;? in all Member States. Registration is effected with the World Intellectual Property Organization in Geneva. Countries that are a party to the Paris Treaty can claim priority rights, within six months, to acquire a priority date, as of which the owner of the design or model can object to all identical and similar design or model applications and registrations.

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G.

Trade Names

The Dutch 1921 Trade Name Act (Handelsnaamwet) prohibits the use of names that are identical or similar to those already being used by another enterprise, if such use can cause confusion among the public.

A company cannot acquire the right to a trade name merely by registering it with the Trade Register, but must also use it.

H.

IP Enforcement Directive 2004/48/EC

The IP Enforcement Directive was adopted on 26 April 2004 by the EU member states in order to harmonize the enforcement of intellectual property rights within the EU, based on the European Commissionâ&#x20AC;&#x2122;s view of best practice across the EU. As of 1 May 2007 the provisions of the IP Enforcement Directive have been implemented into various Dutch IP laws.

The Directiveâ&#x20AC;&#x2122;s provisions include procedures covering evidence and the protection of evidence and provisional measures such as ex parte injunctions and seizure. Remedies available to intellectual property right holders include the destruction, recall, or permanent removal from the market of illegal goods, as well as financial compensation, injunctions, and damages. There is also a right of information allowing judges to order certain persons to reveal the names and addresses of those involved in distributing illegal goods or services, along with details of the quantities and prices involved.

I.

Anti-Counterfeit Measures

As a member of the European Union, the Netherlands has implemented measures to harmonize customs controls with respect to IP rights. Council Regulation (EC) 1383/2003 lays down the measures concerning the importation into the European Community and the export or re-export of counterfeit goods from the same. These measures provide an effective tool in protecting most IP rights against the counterfeit trade.

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Under the Council Regulation, customs can either independently take action by detaining goods that are suspected of infringing certain IP rights, or customs can take such action provided that the holder of these IP rights has filed an appropriate notice with customs. The process for filing a customs notice is relatively simple and straightforward. Customs charges no administrative costs for processing the filing of such notice. Once customs has detained goods, the right holder is given the opportunity to either settle the matter amicably by having the goods surrendered, after which the counterfeit goods can be destroyed, or to commence civil or criminal proceedings.

Practice shows that the goods are usually surrendered for destruction to avoid legal proceedings. Aside from the voluntary surrender of the goods, it is also possible to obtain the presumed agreement to the destruction of the goods, in case the carrier, consignor, or consignee does not oppose a request for surrender.

With “BorderWatch” and “BorderResponse”, Baker & McKenzie has introduced global web-enabled tools to (cost) effectively fight counterfeit at the customs level on a global basis. BorderResponse is a pre-litigation enforcement service on a fixed-fee basis, which includes customs recordation of intellectual property rights, preparing cease and desist letters, and dealing with initial responses from the adverse parties to reach a settlement.

BorderWatch is an online service offering tips on intellectual property protection through customs procedures in 55 countries. BorderWatch features 55 country reports on customs procedures and enforcement options, including information on filing customs notices, acting on a detention or seizure, practical tips and advice, customs registration forms, contact details for customs, and local legal assistance.

J.

Advertising

Misleading advertising is primarily addressed under the tort law. The Dutch Civil Code declares it a tort to misrepresent the nature, composition, quantity, quality, characteristics, user possibilities, origin, or price of a product.

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Comparative advertising is permitted under Dutch law provided it gives an objective comparison of one or more material, relevant, verifiable, and representative features or qualities of the products or services being compared. Other trademarks may be used in such comparisons provided that the advertisement does not harm the reputation of the other trademark.

In the case of misleading or unlawful advertising, an injunction, a rectification, or compensation for damages can be sought before the Dutch courts based on the relevant provisions of the Dutch Civil Code.

Furthermore, advertising standards for specific industries are regulated by separate laws and the industry itself. The Dutch Advertising Code (Nederlandse Reclame Code) is an example of such self-regulation and provides that advertising must be in accordance with the law, the facts, and good taste, and that it may not be contrary to the public interest, public order, or common decency. Advertising that misleads the public, e.g., the price or origin of a certain product, is prohibited.

Specific regulations apply to advertising directed at children and to the advertising of products such as alcoholic beverages, pharmaceuticals, and financial products.

The advertisement of tobacco products has been banned in the Netherlands. The Dutch Tobacco Act also restricts the use of tobacco trademarks and distinguishing signs for non-tobacco products.

In addition to the option of taking legal action, a complaint can be filed with the Advertising Code Committee and its Board of Appeal.

Although the decisions of either group are not legally binding, negative decisions are normally respected by the affiliated media, which will refrain from publishing the advertisement in question. The Advertising Code Committee and its Board of Appeal can render an “individual recommendation” which is communicated only to the plaintiff and the offender in question, or it can render a “public recommendation” which is published in various media.

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The advertising of pharmaceuticals is regulated by the Pharmaceuticals Act (Geneesmiddelenwet). The advertising of pharmaceuticals is further regulated by the self-regulatory codes, such as the Code of Conduct for the Advertising of Pharmaceuticals of the Stichting Code Geneesmiddelenreclame and the Code for the Advertising of Medicinal Products to the General Public of the Stichting Keuringsraad Openlijke Aanprijzing Geneesmiddelen (KOAG).

The advertising of pharmaceuticals (including the grant of incentives to health professionals) is strictly regulated. Public advertising of nonprescription pharmaceuticals is allowed under certain conditions, but public advertising of prescription pharmaceuticals is prohibited.

Advertising to health professionals is allowed provided that certain requirements are complied with. Strict rules apply to comparative advertising for pharmaceuticals.

Complaints on misconduct of the Code of Conduct for the Advertising of Pharmaceuticals can be filed with the Code Committee of the Stichting Code Geneesmiddelenreclame. Complaints on misconduct of the Code for the Advertising of Medicinal Products to the General Public can be filed with the Code Committee of the Stichting KOAG. Appeals against the Code Committeesâ&#x20AC;&#x2122; decisions can be filed with the respective Boards of Appeal. It is also possible to initiate court proceedings against competitors based on unfair competition.

The advertising through (promotional) games of chance is strictly regulated by the Act on Games of Chance (Wet op de kansspelen) and the Code of Conduct on Promotional Games of Chance (Gedragscode promotionele kansspelen). A violation of these regulations is an economic offense.

Under the code of conduct, a maximum of one promotional game of chance per product, service, or organization per year is allowed. No costs other than the costs of communication may be charged for participation in a prize draw. Furthermore, such costs of communication may not exceed EUR 0.60 per entry and must be Baker & McKenzie

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clearly communicated before entry. The price of the product or service may not be increased merely because of the prize draw. The total amount of any winnings must not exceed EUR 100,000. In addition, there must be no more than 13 prize draws in one promotional game of chance.

The organizer of a promotional game of chance must use general terms and conditions which include certain information, such as the name and address of the organizer, the period during which the prize draw is open, the number, nature and value of the prizes, the communication costs, the date of the prize draw, the way that the tax on games of chance will be paid, and the like.

For â&#x20AC;&#x153;small promotional games of chance,â&#x20AC;? where the total value of the prizes is less than EUR 4,500 the regulations are less strict.

In case a promotional action consists of a performance that can be adjudicated, the promotional action will not qualify as a game of chance but as a prize contest. In that case, the total value of the prizes may not exceed EUR 2,300.

K.

Advertising and freedom of expression

Article 7 of the Dutch constitution regarding the freedom of expression does not apply to commercial advertising. However, the corresponding Article 10 of the European Convention on Human Rights (ECHR), which supersedes the national constitutions within the EU, does not exclude commercial advertising. This implies that, according to European law, commercial advertising can fall under the scope of the right to freedom of expression.

In practice, the scope of protection of Article 10 ECHR for commercial advertising seems limited. It does not provide advertisers an unrestricted right to advertise for their own benefit and at their competitorâ&#x20AC;&#x2122;s expense. In Dutch and European case laws, it has been established that in case of a conflict between commercial advertising and, for instance, the intellectual property rights of a competitor, the 196

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court will weigh the interests involved. Generally, the commercial interest of advertising will not prevail over the interest of protection of intellectual property rights.

L.

Unfair Competition

Under certain conditions, recourse may be claimed against passing off or unfair competition under Dutch tort law. To base a claim against unlawful reproduction or copying of goods on unfair competition, it will generally have to be demonstrated that the unlawful acts lead to (a danger of) confusion among the public which could have been avoided without hampering the reliability and usefulness of the goods concerned. Furthermore, it will have to be demonstrated that the unlawful acts in question caused damages for the plaintiff.

Other unlawful acts, such as unfairly competing with oneâ&#x20AC;&#x2122;s former employer, theft of trade secrets, or misleading (comparative) advertising claims, can also be redressed on the basis of unfair competition under Dutch tort law.

In December 2003, the possibilities to base legal action against design infringements on unfair competition became less restrictive, by an amendment of the Benelux Design legislation.

M.

Trade Secrets

Trade secrets are generally protected by contract rather than by law.

They may, however, also be protected by tort law under certain circumstances (see â&#x20AC;&#x153;Unfair Competitionâ&#x20AC;? above).

N.

Assignment, Licensing, and Pledge

Further to the specific provisions under Dutch intellectual property law, the assignment, licensing, and pledge of certain intellectual property rights are subject to the general provisions of Dutch property and contract law and European and Dutch competition law. No government approval is required. However, in order for certain assignments, licenses, and pledges such as patents, trademarks, design Baker & McKenzie

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and models, topographies, or plant breedersâ&#x20AC;&#x2122; rights to be effective against third parties, they must be registered with the applicable registration offices.

O.

Treaties and General European Legislation

In addition to the treaties mentioned above, the Netherlands is also a party to, inter alia, the TRIPs agreement (effective since 1 January 1996) and the Paris Convention establishing the World Intellectual Property Organization.

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XX. Telecommunications A.

Market Situation

The Dutch telecommunications sector has been fully liberalized since 1 July 1997.

Various operators are active in all sectors of the electronic communications industry.

B.

Basic Legislation and Regulatory Authorities

On 19 May 2004, the current Dutch Telecommunications Act (Telecommunicatiewet, or TW) took effect, replacing the TW of 19 November 1998 and implementing the 2002 EU Directives on electronic communications. Like its predecessor, the TW is a framework act, many details of which are further specified in secondary legislation (e.g., government and ministerial decrees).

The principal aim of the new TW is to encourage effective competition. It is designed to work more in line with the general competition law. The new TW is also more technologically neutral compared to the 1998 TW. The independent regulatory authority (OPTA) remains responsible for the general supervision of parties operating on the telecommunications market, for the management of numbering and for the registration of providers, and has significant jurisdiction with respect to the resolution of interconnection disputes.

The Dutch Competition Authority (NMa), an affiliate of the Ministry of Economic Affairs, is empowered to monitor the electronic communications sector for anticompetitive activities and concentrations.

In recent years, OPTA and NMa have strengthened their cooperation.

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Current Developments In 2009, several amendments to the TW entered into force. The modifications relate, among others, to the establishment of an antenna register and to provisions regarding contract periods and notice periods.

As of 1 September 2009, the implementation of Directive 2006/24/EC entered into force. This implementation provides for the Dutch regulatory framework regarding retention of data generated or processed in connection with the provision of publicly available electronic services or networks.

Further, the Dutch prohibition of spam is being extended as of 1 October 2009. In short, this means that it is forbidden to send spam not only to natural persons but also to businesses.

In the first quarter of 2010, distribution of frequencies within the 2.6 GHz band will take place by means of an auction. This band is to be used for mobile communications.

C.

Registration

In order to install or operate public electronic communications networks and provide public electronic communications services and conditional access systems (e.g., video-on-demand), a party is required to register with OPTA. OPTA is also responsible for certifying service providers for electronic signatures. There are standard registration forms available for this purpose (in Dutch and English). Registration is intended primarily to give OPTA an overview of market players in order to ensure effective supervision and is not conditional on meeting any material qualifications other than demonstrating to OPTA that the service or network is indeed offered to the general public. The fees OPTA charges consist of a onetime registration fee and an annual â&#x20AC;&#x153;supervisionâ&#x20AC;? fee, which as of 2006 has been tied to the annual turnover.

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An individual license under the TW is required, in principle, only for the use of frequencies and for mobile and satellite communications.

Depending on the scarcity of the frequencies concerned, licenses for the use of frequencies for commercial electronic communications are granted in accordance with any of the following procedures: (i) in the order in which applications are received (“first come, first served” basis); (ii) by competitive assessment of applicants and applications (“beauty contest”), which may require a financial quotation; or (iii) by auction. Details on the allocation and use of frequencies are set out in a National Frequency Plan. Parties may be excluded from a frequency allocation procedure if this is necessary to guarantee genuine competition in the relevant market.

D.

Numbers

The designated use of numbers is indicated in a number plan. Number plans have been drawn up for, inter alia: (1) telephone and ISDN services; (2) telex services; (3) packet and circuit-switched data services; (4) international signaling point codes; (5) transit network signaling point codes; and (6) identity numbers for international mobility (IMSI numbers).

OPTA is charged with the tasks of granting, reserving numbers, and supervising the use of such numbers. Numbers may be obtained or reserved by means of standard forms, which are available for (i) information numbers for free services (0800) and paid services (0900 and 0906); (ii) number blocks; (iii) individual numbers; (iv) carrier (pre)select numbers (a prefix of “16xx”); (v) international signaling point codes; and (vi) transit network signaling point codes.

Under the revised TW, the number plans shall indicate the allocation method that applies to a certain type of number (i.e., auction, lottery, or “first come, first served” arrangement).

Numbers with an exceptional economic value (i.e., short numbers) will be allocated by auction. Numbers allocated by auction will be

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assigned for an indefinite period, unless the number plan specifies the duration of the assignment.

Numbers may not be traded as a business activity, but the holder of numbers may allow third parties to use its numbers, provided this is done in a non-discriminatory and transparent manner and on the basis of objective criteria.

In 2008, OPTA established guidelines on number portability, which amongst others explicitly state that the right of number portability applies to the change of provider as well as to changes to the form of contract with the same provider.

E.

Rights-of-Way

All providers of public electronic communications and broadcasting networks are accorded rights-of-way. In this respect, the TW stipulates that, notwithstanding the right to compensation for certain damages, any party is obliged to tolerate the installation, maintenance, and clearance of cables in and on public grounds by these providers.

In the case of regional and international networks, this obligation extends to all other types of land, with the exception of enclosed gardens and other enclosed grounds that are integrally connected to private residential premises. For owners and supervisors of public grounds, the right to compensation for damages is limited to compensation of actual costs incurred by the landowner in relation to the establishment or removal of the facilities and any additional maintenance costs.

Antennas and antenna sites are not regarded as cables. A mobile network provider, therefore, cannot rely on a landlordâ&#x20AC;&#x2122;s obligation to tolerate the installation of antennas or antenna sites.

Under the TW, the obligation to tolerate the installation, maintenance, and clearance of cables is extended to empty cable ducts. However, this is limited to 10 years. Once this term expires, the provider of the network could be obliged to remove the empty ducts. Empty cable 202

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ducts that were already situated in public grounds before 6 December 2006 would be allowed until 1 January 2018.

The basic regulation under the TW stating that an owner of public land does not acquire ownership of the cables installed in or on the land by accession does not apply to empty cable ducts. As a result, an operator that wishes to install empty cable ducts must make arrangements with the landowner in order to prevent the ducts from becoming the property of the landowner.

The municipal authorities are charged with coordinating the work relating to the laying, maintenance, and clearance of cables within their jurisdictions.

F.

Significant Market Power

The TW enables OPTA to impose several obligations on market parties that have been designated to have significant market power (SMP). KPN Telecom has been designated as a party with SMP in various communications markets, i.e., (i) public fixed telephony; (ii) leased lines, with the exception of lines having a capacity greater than 2 Mb; (iii) broadband; and (iv) public mobile telephony.

Orange,Tele2, T-Mobile and Vodafone were also designated in 2008 as parties with significant market power on the market for public mobile telephony.

In its vision of the market OPTA has set forth two extremes. One is convergence, meaning, a horizontal market structure with multiple providers will exist. In this scenario, parties with significant market power are less probable so there will be less regulatory intervention.

The other is consolidation, which is already happening, meaning, if it continues, only a few providers will remain.

G.

Interoperability

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obliged to enter into negotiations to achieve interoperability between and among their respective end users. OPTA may set a term within which an interconnection agreement must be concluded. The distinction between direct and indirect interconnection is left out in the new TW. More onerous interconnection obligations apply to providers who have been designated by OPTA as having SMP in the market sector concerned. The â&#x20AC;&#x153;dominantâ&#x20AC;? providers are obliged to (i) offer interconnection to their networks on non-discriminatory conditions; (ii) provide other operators with all necessary information, including all changes in that information scheduled to be introduced in the next six months; (iii) publicize a reference interconnection offer which describes the interconnection facilities and services and which is subject to OPTAâ&#x20AC;&#x2122;s review and approval; and (iv) offer interconnection at cost-oriented and sufficiently unbundled rates.

H.

Universal Services

Pursuant to the TW, certain services and provisions must be available to everyone at affordable prices and of a specified quality on grounds of general and social interest (universal service). These services and provisions currently include fixed voice telephony service, access to public phone booths (in residential centers with more than 5,000 inhabitants: one for every 5,000 inhabitants), access to a comprehensive and complete telephone directory by fixed and mobile telephony subscribers, and access to a telephone directory information service.

The Minister may oblige a party to provide universal services in a designated area for five years if he believes that the provision of services at affordable prices or at a certain quality level is not guaranteed under normal market conditions. The Minister will conduct a competitive test among qualified applicants and assign the universal services obligation to the party that can provide services at the lowest net cost. All service providers concerned that possess SMP within the designated area must participate in the competitive test procedure. The Minister will inform the party having the largest enduser database in a specific service area that he intends to assign to this 204

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party the obligation to provide the universal service. Through a notification published in the Dutch State Gazette (Staatscourant), other parties will be invited to provide a competitive offer. The Minister will assign the universal service obligation to the party that can provide the services at the lowest net cost. The TW contains a description of the net cost.

I.

Privacy and Legal Interception

In addition to the general rules for the protection of privacy under Dutch privacy regulation, the TW lays down specific privacy rules with respect to providers of public electronic communications networks and services. In general, providers must take the appropriate organizational and technical measures to protect the privacy of their subscribers, the subscribersâ&#x20AC;&#x2122; personal data, and the users of their network or services, taking into account the level of technology and the costs involved.

The TW contains an opt-in regime for SPAM, which includes e-mail and SMS SPAM. This regime applies to spam sent to natural persons as well as businesses. The opt-in regime does not apply to unsolicited e-mail sent regarding products or services similar to those already purchased by a customer, provided that the customer is given the opportunity to object to such use of electronic contact details when they are collected and on the occasion of each message if the customer has not initially refused such use. OPTA has an proactive approach with regard to combating spam and can impose severe penalties because of infringement of spam legislation.

The TW contains specific obligations regarding the processing of location data (data processed in an electronic communications network, indicating the geographic position of the terminal equipment of a user). Location data may be processed only when rendered anonymous to the extent necessary to provide the services, or with the consent of the end user. All providers of public electronic communications networks and/or services are also obliged to enable the legal interception of their network or services at their own cost.

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On September 1, 2009, an amendment to the TW entered into force, obliging providers of public telecommunications networks and public telecommunications services to store certain location and traffic data for a period of twelve months. A draft bill is currently under discussion that determines the data retention period for internet service providers on six months.

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XXI. Information and Communication Technology (ICT) A.

General

The Netherlands takes a pragmatic approach to ICT legal issues. The regulatory body provides a basis for IT companies seeking IP protection for their products and services. In general, much is left to the agreement between the parties. This chapter contains an overview of specific types of IP protection available for ICT products and addresses a number of contractual and topical issues in the field of ICT.

B.

Computer Software

Computer software may be protected under the Dutch Copyright Act (Auteurswet), provided it satisfies the originality requirement. The protection granted under the Copyright Act covers, among other things, preparatory materials, source codes, object codes, icons, screens, displays and interfaces. Following the (late) implementation of the 1991 EC Directive on Copyright Protection for Computer Programs, the Copyright Act contains a special section dealing with computer software. No formalities are required to obtain copyright protection for computer software. In 2004, the Dutch Copyright Act was amended to reflect Directive 2001/29/EG. These changes have not affected the protection granted under the Copyright Act to computer software.

Unless the software is developed within the framework of an employer-employee relationship (in which case the employer will normally hold the copyright), generally, the â&#x20AC;&#x153;work for hireâ&#x20AC;? doctrine has no equivalent which maybe applicable in other jurisdictions.

Except where the parties agree otherwise, the software supplier will retain the copyright to their software, even if it was specifically developed for a customer.

The Copyright Act offers the owner of a copyright to software both a civil and criminal recourse against third-party infringement.

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The possibility of protecting software by means of a patent is still under discussion, even at the European level. There is not much Dutch case law on patent protection for computer software. Foreign companies should at least verify whether their computer software qualifies for patent protection in the Netherlands (see Chapter XVII).

C.

Databases

The Dutch Database Act (Databankenwet) took effect on 21 July 1999. Based on the EU Directive on the Legal Protection of Databases, the Dutch legislature adheres to the two-tier regime prescribed by the EU Directive. Within the meaning of the Act, a database is a collection of works, data, or other independent materials arranged in a systematic or methodical way that is individually accessible by electronic or other means. The acquisition, verification, or presentation of the content must be the result of a qualitatively or quantitatively substantial investment.

D.

Topographies of Semiconductors

Chips and their topography may be protected against unlawful exploitation by third parties, pursuant to the Dutch Original Topographies of Semiconductor Products Legal Protection Act (Wet houdende regelen inzake de bescherming van oorspronkelijke topographieĂŤn van halfgeleiderprodukten). Registration with the Office of Industrial Property is required and will remain valid for 10 years. It concerns only a national right.

E.

Technology Transfer

The 2002 EU Technology Transfer Regulation has a direct effect in the Netherlands. It is concerned mainly with the competition law aspects of technology transfer. Furthermore, in 2004, the Commission issued an additional specific Regulation ([EC] No. 772/2004) containing certain categories of technology transfer agreements which, provided certain requirements are met, are allowed for a competition law perspective.

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F.

ICT Agreements and Standard Terms

As in many jurisdictions, suppliers and distributors of ICT products use a plethora of agreements to, for instance, restrict warranties and liability. Both suppliers of computer products/services and end users draft standard terms which are freely available and which are sometimes used, although their use is by no means mandatory. A number of standard terms are mentioned below.

1.

FENIT Conditions – ICT Office Conditions

In 2003, the ICT Office, the industry organization for suppliers of computer products and services, published its last version of the socalled FENIT conditions; standard conditions for, e.g., the sale of hardware, the development and licensing of software, and the provision of maintenance and computer services. Generally, the conditions were more advantageous to the supplier.

In 2009, the industry organization published new standard conditions, the ICT Office conditions. The ICT Office conditions are intended to replace the FENIT conditions and are aimed at covering products and services that are provided in the fields of IT, telecoms, Internet and office technology.

2.

Purchase Conditions

The Dutch Ministry of the Interior has published general terms and conditions covering a range of topics, from the purchase or lease of hardware to complex turnkey projects. These standard conditions are known as “BiZa” contracts. They are produced regularly in negotiations by prospective end users and are in their favor.

3.

Model EDI Agreement

The Netherlands has a model EDI Agreement which is based on the European standard. The liability of suppliers of ICT goods and services is governed by the rules of the Dutch Civil Code on liability, but a number of cases with respect to the IT industry have been published. A rule of thumb that may be deduced from those cases is Baker & McKenzie

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that an IT supplier is obliged to inform its customers of both anticipated delays in delivery and problems with respect to delivery and installation.

In addition to recourse to the courts and arbitration in accordance with the rules of the Netherlands Arbitration Institute (NAI), a special dispute resolution forum for the settlement of IT disputes operates in the Netherlands: the Association for the Settlement of Automation Disputes (Stichting Geschillenoplossing Automatisering).

G.

Shrink-Wrap License Agreements

Many larger (mostly US) software manufacturers use shrink-wrap or even click-wrap licensing terms in the Netherlands. The new legislation implementing the E-Commerce Directive (EC/2000/31) contains several requirements regarding the use and/or applicability of electronic general terms and conditions. There is not much in case law in the Netherlands that governs the use or applicability of shrink-wrap or click-wrap licensing terms. The applicability of such terms will depend mainly on the manner in which they have been brought to the attention of the end user. The principle rule is that an end user must be given a reasonable opportunity to become acquainted with these general terms prior to or at the moment of entering into the agreement regarding the subject matter.

H.

Source Code Escrow

Software source code escrow is fairly common in the Netherlands, but there is no specific legislation. Both active and passive escrow agents make use of tripartite agreements with the supplier and the end user.

I.

The Internet and E-business

The basic principle regarding the Internet is â&#x20AC;&#x153;offline is online.â&#x20AC;?

(Existing regulations for offline activities will be applied similarly to online activities, if possible.)

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1.

Domain Names

It is generally felt that, in principle, the rightful owner of a trademark or a trade name should be able to act successfully against the use of that trademark or a trade name in a domain name, irrespective of the level at which it is used. In the Netherlands, there is an association for the registration of domain names (â&#x20AC;&#x153;SIDNâ&#x20AC;?).The SIDN has incorporated Alternative Dispute Resolution for .nl domain names only. In 2006, the .eu domain name was successfully introduced.

2.

Electronic Commerce Directive

The Dutch government has implemented the EU E-Commerce Directive into Dutch law. The EU Distance Contracts Directive has been implemented into Dutch law as well and contains provisions protecting consumers in distance, including online, transactions. All of the Directives mentioned determine some of the legal parameters for developing and operating E-Commerce in the European Union market.

3.

Electronic Signatures

The EU Electronic Signatures Directive (Wetsvoorstel elektronische handtekeningen) was implemented under Dutch law, effective 21 May 2003. It establishes a legal regime for electronic signatures.

4.

Consumer Protection

In 2007, a new authority (Consumentenautoriteit) for the protection of the collective interests of consumers was founded. This authority has been vested with certain public powers to enforce consumer law. How this enforcement will crystallize in practice has yet to be seen. The authority has announced that it will especially focus on Internet trade.

J.

Encryption

Although in the past, the Dutch government had expressed its intention to introduce a bill dealing with the use and availability of encrypted software (a draft of such a bill already circulated in 1994 Baker & McKenzie

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and which was heavily criticized, and never made it as a bill), still, no such bill has been introduced. It does not seem likely that legislative initiatives will ensue in this context in the near future.

K.

Data Protection

The 2001 Data Protection Act (Wet bescherming persoonsgegevens) imposes a number of obligations on parties that collect and control personal data. What constitutes personal data is largely a question of fact. It is important to verify whether a notification should be filed with the Dutch Data Protection Authority. Likewise, transfer outside the EU triggers specific requirements.

L.

Computer Crime

The 1993 Dutch Act on Computer Crime (Wet computercriminaliteit) contains criminal provisions related to computers. Deletion of data and the addition of worms or viruses that lead to damage may constitute a criminal offense (although the definition of a virus is somewhat unclear). The Act on Computer Crime is incorporated in the Dutch Criminal Code and the Dutch Code of Criminal Procedure.

At the end of 1996, the Dutch Supreme Court issued a judgment holding that computer data are not â&#x20AC;&#x153;goodsâ&#x20AC;? within the meaning of the Criminal Code. In 2006, the long-debated new Act on Computer Crime II (Wet computercriminaliteit II) entered into force, expanding the scope of certain computer crimes and introducing new investigative powers for the enforcement agencies.

M.

Online Gambling

In principle, offering games of chance over the Internet in the Netherlands requires a government permit. In 2006, the Ministry of Justice successfully undertook a crusade against illegal gambling sites.

Most illegal gambling sites in the Netherlands have shut down.

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N.

Retention

On 1 September 2009, an amendment to the Dutch Telecommunications Act entered into force. In short, this amendment imposes an obligation to retain location and traffic data for a period of 12 months which applies to the providers of publicly available electronic networks or services. The Minister of Justice has announced a change in the law which determines a retention period of six months for Internet services providers.

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XXII. Liability A.

General Provisions

The Dutch Civil Code (Burgerlijk Wetboek [BW]; referred to in this Chapter as the â&#x20AC;&#x153;Codeâ&#x20AC;?) generally distinguishes between two types of liability: contractual liability and non-contractual liability. All liabilities that may arise between parties to any contractual relationship are essentially governed by the general provisions of the Code.

Outside of a contractual relationship, liability may be based only on a wrongful act (or strict liability). The Code contains several strict liability provisions, which form a separate category within liability based on wrongful acts (for instance, defective goods and premises, dangerous substances, damage caused by animals, and the like). The two types of liability may coincide, e.g., in a situation in which a party to a contract causes damage to the other party and the event qualifies as a wrongful act if there has been no contractual relationship between the two.

B.

Pre-contractual Liability

Dutch law is notorious for its pre-contractual liability. This liability may be incurred if one of the parties to ongoing negotiations withdraws from such negotiations at a stage when the other party can, for example, reasonably expect that an agreement will be entered into.

Depending on the exact stage of the negotiations, the party withdrawing from the negotiations may be liable for costs incurred by the other party, or even for all lost profits, as if he/she had an agreement. It is even possible that a court will order the party withdrawing from the negotiations to continue the negotiations in good faith.

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C.

Contractual Liability

1.

Breach of contract

A general section of the Code applies to all contractual liabilities, regardless of the type of contract. The main provision is Article 6:74 of the Code, which stipulates as a basic rule that a party is liable for all damages resulting from its attributable non-performance (breach of contract). Such a party may avoid liability if it can prove that it has acted under force majeure, which generally entails proving that the non-performance is not attributable to it on the basis of its actions, the law, the contract, or generally prevailing public opinion.

2.

Good faith

Furthermore, the concept of â&#x20AC;&#x153;good faithâ&#x20AC;? permeates contract law. Both parties to an obligation must behave in their relationship according to what is reasonable and fair. Different from those in many other jurisdictions, contracts not only have the effects expressly agreed upon, but, according to the nature of the contract, also those which result from the law, trade customs, or the requirements of reasonableness and fairness.

3.

Damage and performance

In a contractual relationship, the creditor is not only allowed to claim damages, but in all cases in which the debtor is still able to comply with its obligations, the creditor may also claim specific performance (nakoming). Alternatively, the creditor may dissolve the agreement.

Upon dissolution of said agreement, each party must return to the other what it has received under the dissolved agreement. In addition, in either situation, the creditor is entitled to compensation for damages incurred as a result of the breach.

Several types of contracts are governed by specific statutory provisions, which may contain specific obligations. For instance, the law on contracts for the sale of goods contains several specific obligations on the part of the seller. Under those obligations, the seller of certain goods is obliged not only to compensate the buyer for any Baker & McKenzie

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damages, but also to repair or replace a defective product or supply any missing part, if the buyer so desires.

4.

Limitation of liability

The parties to an agreement may deviate from most liability provisions of the Code. Parties are free to exclude or limit their potential liability for damage caused by a breach of contract or a tort by agreeing to an exemption clause. This contractual right to invoke an exemption clause may be limited only by the court in exceptional cases. In some cases, deviation from the Code is not allowed, e.g., in the case of agreements with consumers. In addition to those rare cases in which a contractual deviation is expressly prohibited by the Code, several other restrictions apply to all contracts in general and liability provisions in particular.

First, provisions that limit or exclude liability for damage caused intentionally or by gross negligence of one of the parties are void, although the party may be exonerated for damages intentionally caused or caused by gross negligence of employees other than senior management.

Second, and far more important, a restriction is imposed in deference to the principles of reasonableness and fairness. In exceptional circumstances, these principles could prevent a party from relying on a clause in a contract. This depends on the circumstances of the case, such as the extent to which the other party was aware of (the meaning of) the clause, the manner in which the clause was agreed on, the nature and further contents of the contract, the possible negligence of the other party, the nature and seriousness of the interests at stake, the relative bargaining strength of the parties, and the mutual relationship between the parties.

Generally, in case of a contract involving the sale of goods, only the seller of the goods may be held liable by the end user if the goods do not conform to the contract. The end user, however, may claim damages from the manufacturer or from other parties in the 216

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distribution chain if the parties are liable on the basis of some types of non-contractual liability (wrongful acts).

D.

Non-contractual Liability (Wrongful Act)

1.

Wrongful act

The basis of all types of liability outside of contractual relationships is Article 6:162 of the Code, which stipulates that any party committing a “wrongful act” toward another party that may be attributed to the party committing the wrongful act is liable for all damages incurred by the injured party. There are three forms of wrongful act: (i) infringement of a subjective right; (ii) act or omission violating a statutory duty; and (iii) conduct contrary to generally accepted social standards.

Nevertheless, liability is denied if the rule invoked by the injured party does not cover its interests which have been damaged by the liable party.

2.

Strict liability

Several types of strict liability apply with respect to goods. Under Dutch law, “strict liability” means liability is deemed to exist without the need for the injured party to prove more than the damage and the causal connection between the wrongful act and the damages.

Essentially, the injured party is not required to prove that the wrongful act or the damage may be attributed to the liable party on the basis of fault.

3.

Product liability

Product liability is an important type of strict liability and was incorporated in the Code in 1988 as a result of the EC Directive of 25 July 1985 on liability for defective products. This legislation created strict liability on which basis a consumer could hold a manufacturer liable if the latter has sold defective (unsafe) products. However, only some forms of damages could be claimed from the manufacturer on the basis of product liability legislation. Depending on the facts of the Baker & McKenzie

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case, the injured party could also claim damages from a party other than the manufacturer (e.g., the seller, the importer into the European Economic Area, or the party that has sold the product under its own brand name) or obtain damages that are not recoverable under product liability legislation on other grounds (e.g., the general law on wrongful acts or a breach of warranty).

According to the Code, a product is defective if it does not provide the safety that one is entitled to, taking all circumstances into consideration, in particular, (a) the presentation of the product; (b) the reasonably anticipated use of the product; and (c) the time the product is brought into circulation.

The manufacturer is liable for all damages resulting from physical injury or death caused by its defective product. The manufacturer may also be liable for damage to other goods that are normally used by consumers if such damage exceeds EUR 500. It is not possible to exclude product liability toward the injured party contractually.

Although there is still some uncertainty in this respect, Dutch law generally allows for a limitation of product liability between companies in a distribution chain.

In a case heard by the Dutch Supreme Court in 1999 (in Hoge Raad, 22 October 1999, Nederlandse Jurisprudentie 2000, no. 159, Rockwool), the Supreme Court held that as a general rule of law, if a party brought a product into the market that had caused damage, that party would be liable for such damage if it was used for a purpose that could reasonably have been anticipated. This type of liability could be invoked by professional buyers, end users, and consumers, and covers all types of damage (including physical injury, property damage, and consequential damage). With this decision, the distinction between claims of wrongful acts and claims based on product liability appears to have faded.

For completenessâ&#x20AC;&#x2122; sake, the EU Directive 2001/95/EC on General Product Safety was implemented on 1 December 2005 in the Consumer Goods Act. Based on this act, rules may be imposed 218

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regarding product safety in the interest of public health, safety, fairness in trade, or proper information about the goods. This act is aimed especially at protecting further distribution of unsafe goods.

The Consumer Goods Act Decree on â&#x20AC;&#x153;general product safetyâ&#x20AC;? (of 29 June 1994) deals with the obligation to launch a product recall.

4.

Liability for services

Liability for services is negligence-based. Where the contractual position between the provider of a service and the client is concerned, the client (only) has to prove a breach of the standard of care, damages and the causal link. According to Article 6:75 of the Code, if the service providerâ&#x20AC;&#x2122;s non-performance has been established, the provider must prove that the non-performance may not be attributed to him.

The service provider will be held liable if he/she is at fault and the non-performance may be attributed to him/her by common opinion.

If the claim is of a tortuous nature, the client will need to establish that the breach of the standard of care may be attributed to the provider.

Attribution of the tortuous act to the provider on the basis of common opinion is also possible under Article 6:162, para. 3, of the Code.

Therefore, neither in a contractual nor in a tortuous way is a fault necessary to hold the provider liable.

The general rule on the standard of care is embodied in Article 7:402 of the Code: the service provider, in the performance of his/her activities, must exercise due care expected of a good provider. For professional services providers, the standard of care is whether a reasonably skilled and reasonably acting professional will have acted differently under the same circumstances.

E.

Compensation of Damages

The sections of the Code that govern the compensation of damages apply to both contractual and non-contractual liabilities.

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1.

Kinds of damage

Two kinds of damage may be compensated: (i) financial loss (vermogensschade); and (ii) other disadvantages (ander nadeel).

Financial loss is the damage to pecuniary interests, including damage to goods and economic loss, pure or consequential. The liable party is obliged to compensate the injured party for all damages incurred by the injured party as a result of, and attributable to, the event that has led to liability (â&#x20AC;&#x153;causal linkâ&#x20AC;?). More specifically, such damages may include compensation for costs incurred as a result of a breach of contract or a wrongful act, lost profits, costs incurred for the assessment and (out-of-court) collection of the amount of damages, and costs incurred for limiting or reducing the damages. Although in principle the injured party has a right to claim compensation for the exact damages, the courts are free to assess the damage in a more abstract way, if that corresponds better to its nature.

Other disadvantages will be compensated only if these have a legal basis. Compensation of non-pecuniary loss (Article 6:106 of the Code), for instance, is possible in case of (a) intentional damage or (b) personal injury or damage to the injured partyâ&#x20AC;&#x2122;s reputation.

2.

Kinds of compensation

Normally, damages will be compensated in money, but the injured party may demand compensation in other forms. Moreover, if the liable party has made profits as a result of its breach of contract or a wrongful act, the court may calculate the damages so as to include all or part of the profit. On the other hand, the court is entitled to reduce the obligation to compensate the aggrieved party for the damage if it believes that full compensation will lead to clearly unacceptable results.

3.

Penalty clauses

Penalty clauses are allowed under Dutch law regardless of whether the penalties are a genuine estimate of the damage incurred or serve as an incentive to perform. Therefore, a penalty does not need to be a 220

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reasonable estimate of the damage actually incurred. Unless otherwise agreed upon, the penalty is the only compensation that may be claimed, regardless of the amount of the penalty. A party that is obliged to pay a penalty may always request the court to reduce the amount on grounds that payment of the full penalty will be unacceptable.

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XXIII. Dispute Resolution A.

Jurisdiction

In the Netherlands, the civil and criminal judiciary comprises cantonal divisions, district courts, courts of appeal and the Supreme Court. The district courts have general jurisdiction over civil law disputes.

Administrative disputes are resolved by separate administrative branches of the district courts. With a few exceptions, judges are professional judges and are appointed for life.

In civil and commercial cases, the cantonal divisions of the courts are concerned with first instance claims that do not exceed EUR 5,000 regardless of the cause. The cantonal divisions of the district courts also have jurisdiction over employment law issues, agency and (real estate) lease disputes. A legislative proposal has recently submitted on the basis of which the jurisdiction of the cantonal division will be extended to claims up to EUR 25,000 and to all claims relating to consumer purchases and consumer credit.

District courts essentially hear all other civil and commercial first instance claims. Courts of appeal decide on judgments given by a district court though most cantonal division judgments may be appealed before a court of appeal.

The administration of justice in the Netherlands is essentially limited to two instances. A judgment given by the court of appeal may, in principle, be submitted for review or cassation before the Supreme Court of the Netherlands on issues of law only. The Supreme Court will, therefore, not decide any factual issues. A submission for cassation to the Supreme Court may be brought on grounds of noncompliance with formal requirements (for instance, if a court fails to give adequate reasons for a judgment) or breach of the law, but not the law of another country. The Dutch Supreme Court and lower courts have no authority to examine laws for compliance with the Constitution (Grondwet). This prohibition on examining laws against the Constitution relates to the manner in which acts of law are 222

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established as well as to their substance. On the other hand, acts of law may be tested for compatibility with a provision of a treaty to which the Netherlands is a party, including any European Community legislation.

Some cantonal divisions and district courts, as well as certain courts of appeal, have special chambers that deal with particular issues. One such chamber is the Enterprise Chamber of the Amsterdam Court of Appeal. This chamber decides on disputes on first instance, for example, those concerning (i) annual accounts, (ii) mismanagement, (iii) buyouts of minority shareholders, and (iv) the Dutch Works Councils Act and on appeal, for example, concerning (a) the mandated departure or ejection of shareholders, (b) the revocation of responsibility for a group company, and (c) objections to a reduction of capital, legal merger or split.

B.

Course of the Proceedings

Most civil and commercial proceedings are initiated by a writ of summons and take place before the district court. In principle, cases will be heard by one judge, but, depending on the complexity or the scope of the case, it can be considered by a panel of three judges. The writ requires that the defendant appear in court on a certain date. It is served on the defendant by a bailiff. In district court proceedings, the defendant must appear through an attorney. Unless the defendant makes no appearance, the court customarily grants the defendant a six-week extension within which to submit a written answer. This first appearance is merely for administration and record purposes and does not take place physically.

After the statement of defense is submitted, additional briefs may subsequently be exchanged, or the court may order the parties to appear in person in order to supply information to the court or to attempt to reach a settlement. The greater part of the proceedings is conducted in writing. The briefs are filed at a docket session, which is a district court session held specifically for that purpose. After the

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briefs have been exchanged, a hearing for oral arguments before the court may be held if either of the parties so requires.

Appeal proceedings are also initiated by the service of a writ (within three months after the judgment in first instance). Only two briefs are exchanged. In the appellant’s brief, the party filing the appeal explains why it disagrees with the judgment passed in first instance. The opponent may file an answer, which is often followed by a hearing for oral arguments. The appellant may contest the judgment by the district court in whole or in part. The course of the proceedings may be complicated by accessory actions and orders to provide evidence, for instance, by examining witnesses. The appeal cases will be heard by a three-judge section.

C.

Summary Proceedings

In urgent cases, the President of the district court may sit in summary proceedings to provide provisional relief. Summary proceedings have gained substantial importance in recent years. There are far fewer restrictions on the type of dispute that may be heard than in almost all other jurisdictions. Today, they are even used to obtain a payment order for essentially undisputed claims.

Summary proceedings are usually done with dispatch. At the plaintiff’s request, the President will schedule a date for the summary hearing to take place within a few weeks. In very urgent cases, hearings can be scheduled even on the same day. The plaintiff initiates the summary proceedings by serving a writ on the defendant. On the date of the summary proceedings, the parties and their counsel (although a defendant may appear in person) appear before the President of the court to explain their positions in oral arguments.

The President has a great degree of latitude to decide on the procedure at a hearing. Although witnesses cannot be heard in the context of summary proceedings, the President may hear “informants” if they are present at the hearing. Although no sworn statements are taken, the

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President usually takes the information provided into account when deciding the issue.

The President generally hands down his decision in summary proceedings within 14 days, but may do so earlier if the case is urgent.

A summary judgment is immediately enforceable and is usually sanctioned often by a substantial penalty to be forfeited to the plaintiff if the judgment is not complied with. The judgment may be appealed before the court of appeal (within four weeks after the judgment in first instance is rendered). It is also possible to lodge a summary appeal, so that the proceedings before this court are conducted as swiftly as possible. A decision by the court of appeal may be submitted for cassation to the Supreme Court.

After the summary proceedings, the interested party may start principal proceedings in which the case is judged on its merits (since summary proceedings are basically a provisional remedy.) In these proceedings, there is room for formal evidence gathering and witness examination. The court is in no way bound by a judgment given in summary proceedings.

Parties rarely initiate principal proceedings after summary proceedings. They usually accept the judgment given in summary proceedings (whether or not on appeal), an indication of the generally good quality of the summary judgment decisions (and judges).

D.

Prejudgment Attachment

To secure the claim, the plaintiff may levy one or more prejudgment attachments, before or during legal proceedings. The leave of the President of the district court is required for a prejudgment attachment. The plaintiff must file an â&#x20AC;&#x153;ex parteâ&#x20AC;? petition with the President in which the claim is prima facie demonstrated. Such leave is generally easy to obtain, often on the same day. The prejudgment attachment is levied by a bailiff. An attachment on movable property may be combined with judicial custody. This means that the bailiff

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turns over the attached property to a person appointed by the President to keep the property in his custody pending the proceedings.

The party subject to attachment may object to the attachment in summary proceedings. The President will lift the attachment if the party subject to attachment demonstrates that the asserted claim is non-existent or frivolous, or that the attachment is unnecessary. The President will also lift the attachment if the party subject to attachment provides adequate security (generally, a bank guarantee by a first-class Dutch bank), as well as in the event of non-compliance with formal requirements (which can result in nullity).

If proceedings before the district court are not yet pending at the time of filing the petition for the Presidentâ&#x20AC;&#x2122;s leave, the President will set a term within which such proceedings must be initiated. The usual term is 14 days. This term may be extended at the request of the attaching party. If judgment is eventually rendered against the plaintiff, the attachment is wrongful. In that case, the plaintiff is liable for damages caused by the attachment.

E.

Arbitration

Parties may also choose to settle their disputes by arbitration, rather than in court. A Dutch court will usually accept this choice. If either party invokes the arbitration agreement, the Dutch court will find that it has no jurisdiction over the case. If the arbitrators are not authorized under the arbitration agreement to grant provisional relief for urgent cases, the President of the district court is competent to grant such relief in summary proceedings, and even if they are not, the President may nevertheless assume jurisdiction if he believes the remedy provided in arbitration is inadequate.

The best known Dutch arbitration institute is the Netherlands Arbitration Institute (NAI) in Rotterdam, which has its own arbitration rules that parties can adopt in their arbitration agreement. The NAI may appoint the arbitrators, or the parties may do so themselves. The

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NAI has a list of qualified and experienced arbitrators who are often attorneys.

Dutch arbitral decisions can easily be enforced in the Netherlands.

Like many European countries and the United States of America, the Netherlands is a signatory to the New York Convention on the recognition and enforcement of foreign arbitral awards. Thus, arbitral awards given in the territory of these States can be enforced in the Netherlands and vice versa.

F.

Mediation

Mediation as an instrument for dispute resolution is becoming more popular in the Netherlands. At the start, mediation was mainly used in family law cases. Today, though, mediation is being used with increasing frequency in other types of disputes.

G.

International Enforcement

Judgments passed by the courts of EU Member States can easily be enforced in the Netherlands. The EU Member States are subject to the Council Regulation on Jurisdiction and the Recognition and Enforcement of Judgments in Civil and Commercial Matters. This Council Regulation has replaced the Brussels Convention.

Prior to enforcement of a judgment handed down by a court in an EU Member State, the leave to do so must be obtained from the President of the district court. The procedure to obtain leave generally takes no more than two or three weeks. Similarly, Dutch judgments are easy to enforce in EU Member States. The same holds true as regards judgments handed down in States that are a party to the Lugano Convention.

Judgments issued by a court of a State with which the Netherlands has an enforcement convention are also enforceable in the Netherlands, on the condition that the prior leave of the President of the district court is obtained. Judgments passed by courts in States with which the Netherlands has no enforcement convention cannot be enforced in the Baker & McKenzie

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Netherlands. Such cases must be retried in the Netherlands and settled anew. However, if the judgment is passed by a court of a State with a well-developed court system, Dutch courts tend to review the judgment only marginally.

H.

European Enforcement Order for Uncontested Claims

The European Parliament and Council Regulation of 21 April 2004 creating a European enforcement order for uncontested claims was implemented in the Netherlands on 21 October 2005. It lays down minimum standards to ensure that judgments, court settlements, and authentic instruments on uncontested claims can be enforced easily in the Member States. This entails the abolition of any intermediate proceedings or grounds for refusal of enforcement regarding judgments handed down in another Member State.

The Regulation applies in civil and commercial matters. It does not cover revenue, customs, or administrative matters. It is applicable in all Member States with the exception of Denmark.

A judgment on an uncontested claim is certified as a European enforcement order by the Member State of origin in accordance with certain conditions. Certification is carried out by means of the standard form. The certification may apply only to parts of the judgment, in which case, the order will be known as â&#x20AC;&#x153;partial European enforcement order.â&#x20AC;?

The Regulation lays down minimum standards with regard to the service of documents (the document instituting proceedings and, where applicable, the summons to a court hearing) to ensure that the rights of the defendant are respected. Only the document service methods listed in the Regulation are allowed if the judgment is to be certified as a European enforcement order.

The creditor must supply the authorities of the other State responsible for enforcement with: 228

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â&#x20AC;˘

a copy of the judgment;

â&#x20AC;˘

a copy of the European enforcement order certificate; and

â&#x20AC;˘

where necessary, a transcription of the European enforcement order certificate or a translation thereof in the official language of the Member State of enforcement or in another language accepted by the Member State of enforcement.

I.

International Payment Orders

On 30 December 2006, the European Parliament and the Council adopted a Regulation creating a European order for payment procedure. The Regulation is adopted in the implementation act of 29 May 2009. This procedure will allow creditors to recover their uncontested civil and commercial claims before the courts of the Member States (except Denmark) according to a uniform procedure that operates on the basis of standard forms. Due to the existence of a procedure that will be common to all Member States, the need for creditors to familiarize themselves with foreign civil procedures will be reduced to a minimum.

The procedure does not require presence before the court. It can even be started and handled in a purely electronic way. The claimant only has to submit its application. It does not require any further formalities or intervention on the part of the claimant. This will ensure a swift and efficient handling of the claim, which should substantially reduce the length of traditional court proceedings.

In addition, since no assistance by a lawyer is required, the procedure will keep the costs to a minimum. Language problems are minimized due to the availability of standard forms in all EU languages to facilitate communication between the parties and the court.

The judicial decision obtained as a result of this procedure can be enforced easily in the other Member States. The creditor will not have to take intermediate steps to enforce the decision abroad.

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J.

European Small Claims

On 11 July 2007, the European Parliament and the Council adopted a Regulation establishing a European Small Claims Procedure. This Regulation is intended to speed up litigation and reduce costs concerning small claims in cross-border cases.

Use of the procedure will not be mandatory but it provides an alternative to other more costly and complex legal procedures. It applies to civil and commercial matters, where the claim (excluding interest, expenses and disbursements) does not exceed EUR 2,000. It does not extend to revenue, customs or administrative matters or the liability of the State for acts and omissions in the exercise of State authority. The claim may be pecuniary or non-pecuniary.

The Regulation will take effect on 1 January 2009 in all EU member countries, with the exception of Denmark. The Regulation is adopted in the implementation act of 29 May 2009.

K.

Collective Action

Articles 3:305a and 305b of the Dutch Civil Code allow associations and foundations with full legal capacity as well as public law entities to initiate action with the aim of protecting â&#x20AC;&#x153;interests similar in kind which are held by other persons.â&#x20AC;? The articles of association should stipulate that the foundation or association promotes these interests.

Before filing a claim, the foundation or association is obliged to make an effort to settle the dispute out of court. The foundation or association files the claim in its own name. The represented parties will not be a party to the proceedings.

The judgment is binding only between the foundation or association and the party or parties responsible for the damages. The individual will not be bound and it keeps the possibility of filing an individual claim.

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The most important limitation of the collective action is that damages may not be claimed. Possible remedies are declaratory judgments or injunctions. Those remedies can help individuals claim damages.

L.

Class Actions

A new Act on the Collective Settlement of Mass Damages took effect on 27 July 2005. The Act facilitates the court-endorsed, collective outof-court settlement agreements regarding mass damages between a representative organization and the party or parties responsible for the damages.

The procedure in achieving a binding settlement agreement as described in the Act is undertaken in three phases.

During the first phase, the representative organization and the responsible party negotiate as regards a possible settlement agreement.

The articles of association of the representative organization should indicate that it acts in the interest of the parties affected. The claims of the affected parties must, to a certain extent, be similar.

In the settlement agreement, the amount of monetary compensation to each affected party, or a formula to calculate the monetary compensation on the basis of objective criteria must be specified. The party responsible must provide sufficient security for its payment obligations under the settlement agreement.

In the second phase, the representative organization and the responsible party file a joint request with the court of appeal in Amsterdam to declare the settlement agreement binding for all parties affected or a group of affected parties. Pending the request with the court of appeal, all legal proceedings against the party involved are suspended. In principle, all affected parties known to the responsible party must be invited to a settlement hearing of the court of appeal in order to give them the opportunity to file objections, if there are any, against the settlement agreement.

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After this hearing, the court of appeal must assess whether the settlement agreement meets the criteria as set out in the act, and more specifically, whether the compensation is reasonable. The court of appeal may either declare the settlement agreement binding, deny the request, or order the parties to amend the settlement agreement.

The third phase concerns the execution of the settlement agreement. If the court of appeal declares the settlement agreement binding, the settlement must then be published in one or more Dutch newspapers and be sent to all known affected parties. The affected parties who do not want to be bound by the settlement agreement have the option to “opt out” within three months after the court decision. The affected parties not “opting out” may collect their compensation within a time frame as specified in the settlement agreement. If the responsible party does not fulfill its payment obligations in a timely manner, the affected person may then dissolve the settlement agreement as far as it concerns that part of the settlement agreement relating to the compensation of this individual party.

M.

Inspection or Taking Copies of Certain Identifiable Documents Instead of Full Discovery

Dutch law does not provide for full discovery of documents. The legislator and the courts are wary of “fishing expeditions.” Article 843a Dutch Code of Civil Procedure (“DCCP”), however, does allow a party who is considered to have a justified interest to demand inspection or a copy or an extract of identifiable documents that relate to a legal relationship to which it is a party. A contract or an alleged wrongful act constitutes such a legal relationship. “Identifiable” means asking for inspection by the party who must identify the documents or at least a specified category of documents. The party may demand this information from any party that has these documents at its disposal or in its possession. If necessary, the court will decide the manner in which inspection is to be conducted, and in which an extract or a copy is to be furnished.

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A court order pursuant to Article 843a DCCP may be enforced by a penalty for non-compliance or attachment of the documents in question. In certain circumstances, such an attachment may be made even prior to filing the application of the court order.

There are restrictions to the application of Article 843a DCCP. First, a party that, because of its duties, profession, or occupation, is bound by secrecy, cannot be forced to comply with the demand if the documents are solely at its disposal or in its possession on that account. Bearers of those duties are inter alia attorneys-at-law.

Second, the confidentiality of the information may be a compelling reason not to comply with the demand.

Third, the proper administration of justice is guaranteed even without providing the requested documents.

Finally, the interest in not divulging information outweighs the interest in obtaining it. The court will decide on the validity of these defenses.

N.

Witness Hearing

The court can order witnesses to appear in court and testify in a civil case. A witness who refuses to testify can be taken into custody for a maximum of one year and is liable for damages caused by his/her refusal to testify.

The hearing is held before the court and the witnesses are under oath.

A single judge will hear the witness. Towards the end of the hearing, counsels to the parties are given the opportunity to question the witness. Witness hearings are not recorded and no word-for-word transcript will be made. The judge summarizes the witnessâ&#x20AC;&#x2122; statements in the presence of the witness and the parties. The summary is then signed by the witness at the end of the hearing.

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Before legal proceedings are commenced (and also during these proceedings), the Court may be requested to hold a preliminary hearing of witnesses to preserve evidence and evaluate the chances in litigation or in settlement negotiations.

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XXIV.Commercial Contracts A.

Dutch Contract Law

Dutch contract law is rather liberal and allows for substantial freedom of contract. For the majority the rules of the Dutch Civil Code are default rules that apply if and to the extent that the parties have not arranged for a specific topic in their contract. However, for some types of contracts, such as commercial agency contracts (see paragraph 5 below), consumer contracts (see paragraph 3 below), lease contracts, insurance contracts and transport-related contracts, (partly) mandatory legislation exists.

It is furthermore important to note the principles of reasonableness and fairness that underlie Dutch contract law. These principles may either supplement a contract agreed between the parties or – in exceptional circumstances – prevent a party from relying on a contractual clause (see with regard to limitations of liability, Chapter XXII).

Some other distinctive features (although not mandatory) of Dutch law are: •

Termination: In the event of a breach, the non-breaching party is allowed to terminate (dissolve) the contract, unless the breach does not justify the termination and its consequences.

This also applies in the event of force majeure.

•

Specific performance: In the event of breach of contract, the non-breaching party may also claim specific performance.

•

Penalties: Parties are free to agree on a penalty. The amount of the penalty does not have to resemble the expected damages, although a court is entitled to reduce the amount of the penalty. Unless agreed otherwise, the penalty replaces the right to specific performance and full damages.

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The Netherlands is a party to the UN Convention on Contracts for the International Sale of Goods (“CISG”).

B.

General Terms and Conditions

The Dutch Civil Code (“DCC”) provides for specific legislation with respect to general terms and conditions. In short, this legislation grants protection to the other party of a user of general terms and conditions.

More specifically, a provision of general terms and conditions is voidable if (i) a clause is “unreasonably onerous” (“onredelijk bezwarend”) to the other party, or (ii) the user of the general terms and conditions has not given the other party a reasonable opportunity to take knowledge of the general terms and conditions.

However, with respect to business-to-business relationships this protective legislation will only apply if both parties are established in the Netherlands. In addition, this legislation cannot be invoked by (a) legal entities that have recently published their annual accounts at the time of conclusion of the contract, or (b) parties that are not covered by (a) if they employ 50 or more persons according to an excerpt from the Trade Register at the time of conclusion of the contract. In other words, it will mostly be consumers and Dutch small businesses that may invoke this protective legislation.

C.

Consumer Protection/Consumer Sales

The DCC provides for specific protection to consumers. This involves most importantly the legislation with respect to consumer sales. A consumer sale is a sales agreement with respect to movables, including electricity, concluded by and between a seller that acts within in the course of a profession or a business and a buyer, being a natural person, that does not act within in the course of a profession or a business. The principal rule with respect to consumer sales is that a good delivered must conform to the agreement. If not, the DCC grants the consumer certain rights, e.g. repair, replacement, or refund of the purchase price.

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This legislation is mostly mandatory in nature towards consumers in that it cannot be deviated from to the detriment of the consumer. If the seller does so, the provision in question would be voidable, that is, the seller would not be entitled to invoke such provision if the consumer declares the provision void.

D.

Consumer Authority

As from January 2007, the Dutch Consumer Authority (â&#x20AC;&#x153;Consumer Authorityâ&#x20AC;?) is the supervisory body with respect to consumer law and fair trade. Its main purpose is the promotion of fair trade between companies and consumers. It inter alia exercises this by dealing with collective infringements (by companies). In this respect the Consumer Authority has private-law and administrative-law rights at its disposal for enforcing consumer laws, including imposing fines. In addition, the Consumer Authority may publish any measures it has taken against companies within the context of its supervisory role, causing a certain extent of negative publicity for the companies involved.

The Consumer Authority will in principle have no jurisdiction with respect to non-Dutch entities. That said, if an act or omission of a nonDutch entity that is established in the EU violates consumer protective legislation in the Netherlands, the Consumer Authority may engage the enforcement authorities of the relevant EU country. In such events, the Consumer Authority can request the authorities in that other member state (i) to provide all information relevant to assess whether a violation of consumer protective legislation has taken place or whether a reasonable presumption exists that such violation could take place, and (ii) to take action to stop or prohibit the violating act or omission. Also from that perspective, it is important to comply with Dutch legislation with respect to consumers.

E.

Agency Agreements

A commercial agent is a person or company that mediates against payment with respect to the conclusion of contracts and, possibly, concludes those contracts in the name and for the account of the principal.

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Dutch agency law is based on EC Directive 86/653/EC and is substantially mandatory in nature, particularly those provisions aimed at protecting the agent. For example, mandatory minimum notice periods apply and an agent is in principle entitled to receive goodwill compensation upon termination of the agency agreement.

Termination of an agency agreement may be subject to prior approval of the Dutch Employee Insurance Agency (“UWV WERKbedrijf”) in case a so-called “small” agent is involved (i.e. an individual who acts as an agent for not more than two principals and who does not employ more than two assistants).

Parties are free to determine the governing law of their agreement.

However, a choice for foreign law will not set aside the so-called Dutch “overriding mandatory rules.” To date, the rules regarding goodwill compensation and the special termination protection applying to “small” agents have been considered as such overriding mandatory rules.

Finally, it should be noted that EU and Dutch competition rules may also have an effect on agency agreements. This subject is further discussed in Chapter XVIII.

F.

Distribution Agreements

A distribution agreement differs from an agency agreement in that the distributor purchases products or services from the supplier and resells them to third parties in its own name and for its own account.

Dutch law does not provide for specific provisions on distribution agreements. Consequently, distribution agreements are governed by the general principles of Dutch contract law as provided for in the DCC. These principles are rather liberal and allow for substantial freedom for the contracting parties. The parties are thus in principle bound by their agreement, including the termination provisions thereof. A Dutch court may, however, set aside a contractual provision if invoking such a provision, considering all circumstances of the case, 238

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is deemed unacceptable in view of the principles of “reasonableness and fairness” (“redelijkheid en billijkheid”).

When a distribution agreement is silent on termination, such agreement may in general be terminated by giving reasonable notice.

All relevant factual circumstances need to be taken into account in order to determine the reasonableness of a notice period (e.g., the duration of the relationship, the dependence of the distributor, investments recently made, etc.). Depending on the circumstances, notice periods may vary from one month to more than one year.

As a general rule, a distributor is not entitled to compensation if a reasonable notice period has been granted. However, the principles of reasonableness and fairness may bring that, under specific circumstances and despite the fact that a reasonable notice period has been granted, the distributor is entitled to some form of compensation.

This may be the case, for example, if the supplier has given the impression that the contract will be continued and the distributor has made investments that cannot be recouped.

Finally, it should be noted that EU and Dutch competition rules have a significant effect on distribution agreements. This subject is further discussed in Chapter XVIII.

G.

Franchise Agreements

Similar to most other European jurisdictions, the Netherlands has not adopted any specific legislation on franchise agreements. In the absence of any specific rules, franchise agreements are regulated by the general (default) rules of Dutch contract law, in the event the parties choose Dutch law as the governing law.

Although franchise agreements are not defined in Dutch law, they are often seen as agreements whereby the franchisor grants the right to a franchisee whereby one party, the franchisor, grants the other party, the franchisee, the right to exploit a franchise for the purpose of marketing specified types of goods and/or services. The core Baker & McKenzie

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obligations laid down in the franchise agreement typically relate to, among others, the use of a common name or shop sign (i.e., the grant of a license) and a uniform presentation of the premises, and the availability of know-how of the franchisor.

As a result, the freedom of contract of the parties prevails and parties are free to determine the terms of the franchise agreement under Dutch law. Yet it should be borne in mind that restrictions may ensue from the general principles of reasonableness and fairness referred to above.

A common legal issue with regard to franchise agreements is whether the franchisor is subject to a (general) pre-contractual disclosure obligation according to which he should inform the franchisee of the risks and opportunities (i.e., estimated revenues) of the franchise venture prior to concluding the agreement. The Dutch Supreme Court has held that such a general disclosure obligation, in principle, does not exist under Dutch law. However, there may be instances in which specific circumstances call for protection of the (potential) franchisee and a pre-contractual duty to inform ensues from the general principles of reasonableness and fairness.

EU and Dutch competition rules may also have an impact on franchise agreements. Please refer to Chapter XVIII.

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Appendix I â&#x20AC;&#x201C; Procedure for Incorporating a Dutch NV, a BV, or a Cooperative Procedure for the incorporation of a Dutch NV (Naamloze Vennootschap met beperkte aansprakelijkheid or a public limited liability company), a BV (Besloten Vennootschap met beperkte aansprakelijkheid or a private limited liability company), and a cooperative (cooperatie).

1.

Procedure (a)

Perform trade name research at the Trade Register of the Chamber of Commerce to investigate whether the proposed or a similar name may be used. Three different names may be examined in one trade name research.

(b)

Execute a power of attorney by the incorporator(s) to execute the notarial deed of incorporation.

(c)

Submit questionnaires to the Ministry of Justice and obtain Ministry of Justice approval.

(d)

Open a separate bank account in the name of the company in incorporation.

(e)

Issue a bank statement to the notary confirming payment of the incorporation capital or issue an auditorâ&#x20AC;&#x2122;s statement to the notary confirming the value of the contribution which at least equals the incorporation capital.

(f)

Execute the notarial deed of incorporation, including the Articles of Association.

(g)

Register the company or cooperative, managing directors and sole shareholder (if applicable) with the

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Trade Register of the Chamber of Commerce within eight days after execution of the notarial deed.

Steps c, d, and e are not applicable to the incorporation of a cooperative.

2.

Documentation

The following information or documentation is required for the application procedure at the Ministry of Justice as described above: (a)

Proposed name, statutory seat, and address of the new company.

(b)

Description of the new company’s activities.

(c)

Authorized and issued share capital, number, and par value of shares.

(d)

A completed and signed Ministry of Justice “form B” if the incorporator or managing director is a private individual (full name, place and date of birth, nationality, address, marital status, and employment details).

(e)

A completed and signed Ministry of Justice “form C” if the incorporator or managing director is a legal entity (name, statutory seat, object, data on directors and shareholders, financial figures, and history).

(f)

The ultimate beneficial owner, either a private individual or a listed company, should partly complete and sign Ministry of Justice “form B” or “form C.”

(g)

An annex completed with details (name, statutory seat, object, financial figures) of legal entities in which the incorporator or managing director is involved as holder of controlling shares or as holder of more than 50% of the issued share capital.

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Form B or C should be completed by each incorporator, each managing director and each ultimate beneficial owner. There are situations, however, in which the incorporator or managing director is exempted from fully completing the form and is required to complete only part of it.

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Appendix II â&#x20AC;&#x201C; Overview of Tax Rates Inbound Income Under Dutch Tax Treaties Appendix Country N.i.f. Means tax treaty signed but not in force yet Albania Argentina Armenia Aruba Australia Austria Azerbaijan Bahrain Bangladesh Barbados Belarus Belgium Bosnia and Herzegovina Brazil Bulgaria Canada China Croatia Czech Rep. Denmark Egypt 244

Dividends Reduced rate under tax treaty for qualifying participations

Interest Reduced rate under tax treaty

Royalties Reduced rate under tax treaty

0%/5%

Reduced rate under tax treaty for individuals and companies 15%

10%

15%

0%/5%/ 10% 12%

0%/5% 5%/7.5% 15% 5% 15% 0% 10% 0% 0%/5%

15% 15% 15% 15% 15% 10% 15% 15% 15%

0%/5% 0% 10% 0% 0% 0% 7.5%/10% %5% 5%

0%/5% 5%

15% 15%

0%/10% 0%

3%/5%/ 10%/15% 5% 0% 10% 0%/10% 0% 0% 10% 0%/5% 3%/5%/ 10% 0% 0%

15% 5% 5% 10% 0% 0% 0% 0%

15% 15% 15% 10% 15% 10% 15% 15%

10%/15% 0% 0%/10% 10% 0% 0% 0% 12%

15%/25% 0% 0%/10% 10% 0% 5% 0% 12%

10%

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Appendix Country N.i.f. Means tax treaty signed but not in force yet

Dividends Reduced rate under tax treaty for qualifying participations

Estonia Finland France Georgia Germany Ghana Greece Hungary Iceland India Indonesia Ireland Israel Italy Japan Jordan Kazakhstan Korea Kuwait Kyrgyzstan Latvia Lithuania Luxembourg

5% 0% 5% 0%/5% 10% 5% 5% 5% 0% 10%/15% 10% 0% 5% 5%/10% 5% 0%/5% 0%/5% 10% 0% 15% 5% 5% 2.5%

Reduced rate under tax treaty for individuals and companies 15% 15% 15% 15% 15% 10% 15% 15% 15% 10%/15% 10% 15% 15% 15% 15% 15% 15% 15% 10% 15% 15% 15% 15%

0% 0% 5%

15% 15% 15%

Macedonia Malawi Malaysia Malta Baker & McKenzie

Interest Reduced rate under tax treaty

0%/10% 0% 0%/10% 0% 0% 0%/8% 8%/10% 0% 0% 10%/15% 10% 0% 10%/15% 10% 10% 5% 0%/10% 10%/15% 0% 0% 10% 10% 0%/2.5%/ 15% 0% 0% 10% 10%

Royalties Reduced rate under tax treaty

5%/10% 0% 0% 0% 0% 8% 5%/7% 0% 0% 10%/20% 10% 0% 5%/10% 5% 10% 10% 0% 10%/15% 5% 0% 5%/10% 5%/10% 0% 0% 0% 8% 0%/10% 245

Appendix Country N.i.f. Means tax treaty signed but not in force yet

Dividends Reduced rate under tax treaty for qualifying participations

Mexico

0%/5%

Reduced rate under tax treaty for individuals and companies 15%

Moldova Mongolia Montenegro Morocco Netherlands Antilles New Zealand Nigeria Norway Pakistan

0%/5% 0% 5% 10% 8.3%

Philippines Poland Portugal Qatar Romania Russia Saudi Arabia Serbia Singapore Slovak Republic Slovenia South Africa Spain 246

Interest Reduced rate under tax treaty

Royalties Reduced rate under tax treaty

15% 15% 15% 25% 15%

0%/5%/ 10%/15% 5% 0%/10% 0% 10%/25% 0%

10% 2% 0%/5% 10% 10% 0%

15%

15%

10%

10%

12.5% 0% 10%

15% 15% 20%

12.5% 0% 5%/15%

10%

15%

5% 0% 0% 0%/5% 5% 5% 5% 0% 0%

15% 10% 10% 15% 15% 10% 15% 15% 10%

12.5% 0% 10%/15%/ 20% 0%/10%/ 15% 0%/5% 10% 0% 0% 0% 5% 0% 10% 0%

5% 5% 5%

15% 10% 15%

0%/5% 0% 10%

5% 0% 6%

15% 5% 10% 5% 0% 0% 7% 10% 0% 5%

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Appendix Country N.i.f. Means tax treaty signed but not in force yet

Dividends Reduced rate under tax treaty for qualifying participations

Sri Lanka Suriname Sweden Switzerland Taiwan Tajikistan Thailand Tunisia Turkey Turkmenista n Uganda Ukraine

10% 7.5%/15% 0% 0% 10% 15% 5% 0% 5% 15%

Reduced rate under tax treaty for individuals and companies 15% 20% 15% 15% 10% 15% 25% 20% 20% 15%

0% 0%/5%

5%/15% 15%

5%

United Kingdom United States Uzbekistan Venezuela Vietnam Zambia Zimbabwe

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Interest Reduced rate under tax treaty

Royalties Reduced rate under tax treaty

5%/10% 5%/10% 0% 5% 0%/10% 0% 10%/25% 7.5% 10%/15% 0%

10% 5%/10% 0% 0% 10% 0% 5%/15% 7.5% 10% 0% 10% 0%/10%

15%

0%/10% 0%/2%/ 10% 0%

0%/5%

15%

0%

0%

0%/5% 0%

15% 10%

0%/10% 5%

5%/7%

15%

7%

5% 10%

15% 20%

10% 10%

0%/10% 5%/7%/ 10% 5%/10%/ 15% 10% 10%

0%

247

1.

Qualifying companies column

The lower rate in the column generally applies if the recipient is a company that owns at least 25% of the capital to the voting power in the Netherlands company, as the case may be. There may be special conditions or exceptions.

2.

Interest column

Many treaties provide for an exemption for certain types of interest, e.g. interest paid to the state, local authorities, the central bank, export credit institutions or in relation to sales on credit. Such exemptions are not considered in this column. The lower rates generally refer to interest paid by banks or on government bonds.

3.

Royalty column

Different rates in the columns generally refer to different types of withholding tax rates depending upon the type of royalty, e.g. copyright payments, payments for the use of films and computer software, payments for the use of patents, trademarks and know-how.

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Appendix III â&#x20AC;&#x201C; Contact Information 1.

Amsterdam Practice Groups and Teams

(a)

Practice Groups

Banking & Finance Phillipe Steffens Tel.: +31 20 551 7410 philippe.steffens@bakermckenzie.com Commercial Property & Transactions Bob Bekker Tel.: +31 20 551 7498 bob.bekker@bakermckenzie.com Commercial, Regulatory & Trade Marco Wallart Tel.: + 31 20 551 7112 marco.wallart@bakermckenzie.com Corporate /M&A Edwin Liem Tel.: +31 20 551 7514 edwin.liem@bakermckenzie.com Mike Jansen Tel.: +31 20 551 7164 mike.jansen@bakermckenzie.com Jeroen Hoekstra Tel.:+31 (20) 551 7879 jeroen.hoekstra@bakermckenzie.com

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Doing Business in the Netherlands 2010

Corporate Structures John Paans Tel.: +31 20 551 7944 john.paans@bakermckenzie.com Corporate Tax Herman Huidink Tel.: +31 20 551 7578 herman.huidink@bakermckenzie.com Employee Benefits Tax Group Jan-Willem de Tombe Tel.: +31 20 551 7837 jan-willem.detombe @bakermckenzie.com Employment Karin Bodewes Tel.: +31 20 551 7452 karin.bodewes@bakermckenzie.com Mirjam de BlĂŠcourt-Wouterse Tel.: +31 20 551 7466 mirjam.deblecourt@bakermckenzie.com EU & Competition Misha lutje Beerenbroek Tel.: +31 20 551 7518 misha.lutjebeerenbroek@bakermckenzie.com Intellectual Property Robert Boekhorst Tel.: +31 20 551 7533 robert.boekhorst@bakermckenzie.com

Doing Business in the Netherlands 2010

IT/Communications Robert Boekhorst Tel.: +31 20 551 7533 robert.boekhorst@bakermckenzie.com Litigation & Arbitration Jeroen Bedaux Tel.: +31 20 551 7542 jeroen.bedaux@bakermckenzie.com International Tax Wouter Paardekooper Tel.: +31 20 551 7449 wouter.paardekooper@bakermckenzie.com Pensions Irene Vermeeren-Keijzers Tel.: +31 20 551 7477 irene.vermeeren@bakermckenzie.com Indirect Tax Folkert Idsinga Tel.: +31 20 551 7599 folkert.idsinga@ bakermckenzie.com (b)

Industry Groups Baker & McKenzie

Energy Jeroen Hoekstra Tel.: +31 (20) 551 7879 jeroen.hoekstra@bakermckenzie.com Fashion & Luxury Goods Remke Scheepstra Tel.: +31 20 551 7831 remke.scheepstra@bakermckenzie.com

Food Misha lutje Beerenbroek Tel.: +31 20 551 7518 misha.lutjebeerenbroek@bakermckenzie.com Pharmaceuticals & Healthcare Misha lutje Beerenbroek Tel.: +31 20 551 7518 misha.lutjebeerenbroek@bakermckenzie.com Real Estate Bob Bekker Tel.: +31 20 551 7498 bob.bekker@bakermckenzie.com (c)

Specialist Teams Baker & McKenzie

Outsourcing Robert Boekhorst Tel.: +31 20 551 7533 robert.boekhorst@bakermckenzie.com Mirjam de BlĂŠcourt-Wouterse Tel.: +31 20 551 7466 mirjam.deblecourt@bakermckenzie.com Private Equity Edwin Liem Tel.: +31 20 551 7514 edwin.liem@bakermckenzie.com Jan Peters Tel.: +31 20 551 1178 jan.peters@bakermckenzie.com

Mike Jansen Tel.: +31 20 551 7164 mike.jansen@bakermckenzie.com Project Finance Fedor Tanke Tel.: +31 20 551 7508 fedor.tanke@bakermckenzie.com Reorganizations Wouter Paardekooper Tel.: +31 20 551 7848 wouter.paardekooper@bakermckenzie.com Risk Management Jan Snel Tel.: +31 20 551 7517 jan.snel@bakermckenzie.com Mike Jansen Tel.: +31 20 551 7164 mike.jansen@bakermckenzie.com Share-Based Compensation Maarten van der Lande Tel.: +31 20 551 7426 maarten.vanderlande@bakermckenzie.com Jan-Willem de Tombe Tel.: +31 20 551 7837 jan-willem.detombe @bakermckenzie.com

(d)

Country Desks Baker & McKenzie

Russia Marc van Campen Tel.: +31 20 551 7827 marc.vancampen@bakermckenzie.com Japan Desk Theo van Maaren Tel.: +31 20 551 7418 theo.vanmaaren@bakermckenzie.com

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Doing Business in the Netherlands

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Doing Business in the Netherlands

Our difference is the way we think, work and behave – we combine an instinctively global perspective with a genuinely multicultural approach, enabled by collaborative relationships and yielding practical, innovative advice. With 3,900 lawyers in 39 countries, we have deep understanding of the culture of business the world over and are able to bring the talent and experience needed to navigate complexity across practices and borders with ease.

2010

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