Motion adopted to propose new legislation on Management Equity Plans

The Lower House of the Dutch Parliament has adopted a motion asking the government to propose new legislation with regard to what they call “carried interest”. Specifically, the government was asked to tax carried interest at the progressive personal income tax rate (top rate of 49.5%) for private equity structures.

Although it is unclear what is exactly meant by “carried interest”, it seems likely that this includes management incentive plans that qualify as indirectly held lucrative interests (i.e. sweet equity), although this is by no means certain.

Potential impact

Considering the non-deductibility of payments relating to lucrative interests for corporate income tax purposes, this will make structuring a lucrative interest through a management company far less attractive. Currently, an indirectly held lucrative interest is taxed beneficially (33% in 2024) if the personal holding company pays at least 95% of the interest to the manager (which is taxed as income from substantial interest).

Although the motion has been adopted, it is still unclear what shape the new legislation will take, whether transitional rules (if any) will apply and what they will look like and whether this will only concern private equity structures. We are of course happy to discuss the options available to you. In this respect we refer to our previous memorandum: Employee incentive trends – SAR plan’s: your incentive plan for 2024 | Meijburg & Co Tax & Legal.