On December 21, 2015 the Cabinet sent a letter to the Lower House in which it responded to the Initiative Memorandum “Private Equity: an end to excesses”, drawn up by two PvdA members of parliament, Messrs. Nijboer and Groot. The Initiative Memorandum presents a number of proposals to amend both tax law and civil and business law, which are particularly relevant to private equity investment.

In its letter the Cabinet indicated that the interest deduction limitation for acquisition financing, – Section 15ad Corporate Income Tax Act 1969 (“Section 15ad”) – will be tightened, but that the amendments will, at the earliest, be included in the 2017 Tax Plan, which will be presented on Budget Day 2016.In addition, the Cabinet will have independent research done into the effects of private equity investment in the Netherlands. Below, we address a number of important matters dealt with in the letter.

The role of private equity in the Dutch economy

The Cabinet states that private equity investors play an important role as an alternative source of financing for Dutch businesses, next to bank credit. For Dutch pension funds, private equity funds are an alternative form of investment, next to shares and bonds, that offers them the opportunity to diversify their investments.

The Cabinet indicated, however, that it is important to have insight into the scale at which incidents occur, whereby insufficient account is taken of the long-term interests of the acquired businesses. The example given is the situation where an acquisition is financed with so much debt that the financial soundness of the acquired business was at stake. The Cabinet wants to assess whether such incidents require a response. Because existing research is somewhat dated, the Cabinet is going to have new, independent research carried out into the effects of private equity investors in the Netherlands.

Deduction limitation on acquisition debt

In 2012 the Cabinet took steps to discourage excessive debt financing by amending the law. For tax purposes, this meant limiting the deductibility of interest on acquisitions that were excessively debt-financed. Briefly put, under Section 15ad, which section was introduced in 2012, if a Dutch acquisition holding raises loans in order to acquire a Dutch company (or group of companies) and these companies enter into a fiscal unity, the acquisition interest is, in principle, non-deductible insofar as the acquisition holding, on a stand-alone basis, does not generate enough own profit to cover the deduction of the acquisition interest (a threshold applies). This limitation does not apply insofar as the acquisition debt remains below a certain percentage of the acquisition price (see also below).

The Cabinet noted that, since the implementation of Section 15ad, there has been a significant decline in the degree to which private equity acquisitions are debt-financed. By contrast, the Dutch tax authorities have concluded that in a few cases taxpayers have sought to avoid this provision. In response to this, the Cabinet has indicated that it is prepared to amend the law on the following points:

Seven-year period

Aside from the threshold, the tax deductibility of acquisition interest in the year of acquisition is limited to a maximum of the interest on an acquisition debt that does not exceed 60% of the acquisition price. During the following seven years, this percentage is reduced annually by 5% to 25%. The Cabinet is now considering further clarifying this seven-year period in order to prevent this period being renewed in the interim by transferring the acquired company to a new acquisition holding company.


The Cabinet will also clarify the provision on acquisition holding companies in the event an acquisition debt is transferred to the level of the acquired company by way of a debt-pushdown.

Review of transitional rules

Finally, the Cabinet has stated its willingness to review the scope of transitional rules, which, briefly put, means that Section 15ad does not apply to acquisitions made before November 15, 2011. On the basis of these transitional rules, old loans can be continued or refinanced, without Section 15ad applying to these debts.

G20/OESO/EU BEPS project

The Cabinet states that it wishes to continue multilateral discussions on and take steps with regard to the generic interest deduction limitation, as proposed in the G20/OECD's BEPS project and which may also be part of the anti-BEPS directive that the European Commission will launch at the beginning of 2016. Although the Cabinet wants to review the usefulness and necessity of Section 15ad when the outcomes of that project are implemented at a later stage, it is prepared to amend that provision now, because this will give the Dutch tax authorities a better instrument to achieve the goals of that provision and a change in the law will probably also have a preventive effect.

Staff Councils

The Cabined has indicated that Staff Councilsalready have numerous opportunities to gain insight into and to exercise influence on a company acquisition, but is not always able to act effectively in this.To this end, the Initiative Memorandum proposes giving Staff Councils more insight into the financing of an acquisition and the right to independently obtain information from the accountant. The Cabinet wants to investigate further whether and when this will be the case, and whether and in what way this could best be arranged.

Next steps

The Cabinet does not have the impression that the entire sector is characterized by excesses, but does wish to gain more insight into the situation surrounding private equity investment. The Cabinet will therefore have new independent research carried out on this. The possibility of strengthening the position of Staff Councils in acquisitions will also be looked into. The Taxation of Excessive Remuneration Act is presently being evaluated and the outcome of this is awaited.

The Cabinet concurs with the issues that the initiators of the memorandum have identified regarding Section 15ad and is prepared to amend this provision. However, because of the complexity of the changes, the amendments of tax law will not be presented any earlier than via the 2017 Tax Plan. However, the proposed changes will be released by way of a public online consultation in the spring of 2016. After the BEPS outcomes are implemented at a later stage, the Cabinet will review the usefulness and necessity of Section 15ad.

Click here to download the memorandum in pdf format