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Analysis & Insights

Netherlands: A Centre for International Finance

08 Jun 2020

Located in the heart of Europe, the Netherlands, which came to dominate global capital markets and commerce in the 17th and 18th centuries, remains to this day a highly attractive jurisdiction for corporate domicile and international finance transactions.

From the introduction of the first real stock exchange in 1602 to its powerful merchant banks of the 1750s, the Netherlands is recognised today for its strong regulatory framework, solid legal system and the political and financial stability that comes from being a key member of the EU and one of only 11 countries worldwide with a Triple-A rating.  

Deep financial markets alongside the presence of leading international law firms and advisors and a highly qualified workforce, in addition to its influential role in developing EU policy, cements the attraction of the Netherlands as a destination for capital or issuance of securities.  Notable highlights of its legal and regulatory system, which have underpinned a highly successful financial industry with one of the strongest securitisation sectors in Europe, include a creditor friendly collateral arrangement regime and the capacity for trustees to act on behalf of noteholders.  The ability to issue securities under foreign governing law is another hallmark of the jurisdiction's flexibility, where institutions can also take advantage of the exemption from banking and insurance licensing requirements when undertaking loan origination or insurance securitisation business.

Furthermore, the Netherlands' extensive network of tax treaties and general absence of withholding tax on interest or stamp duties comprise part of the nation's favourable fiscal climate, which has facilitated the activities of international business and its own corporate giants like Philips, Unilever and Royal Dutch Shell. 

While it can be said that regulation in the Netherlands in some instances goes above EU requirements, for many institutions this conservative and robust framework is very attractive for their risk profile in terms of gaining certainty around tax issues by way of tax rulings from the Dutch tax authorities.  The nation is highly advanced in investor reporting and was central to the development of the defined terms and other features in the EU Securitisation Regulation, which were adopted in the Netherlands at a very early stage.

The Dutch securitsation market, which is recognised as one of the strongest in Europe with over €50 billion outstanding in 2018 according to the Dutch Central Bank, is dominated by RMBS which accounted for 90% of that year's issuance.  Historically, the extremely low default rate of Dutch RMBS has attracted investors to the asset class and its resilience during the financial crisis only served to underline its appeal.  A notable recent development in Dutch RMBS has been the emergence of a buy-to-let market, which now features a number of specialist players, compared to just one a couple of years ago.  With strong house price appreciation and an existing housing shortage in the Netherlands, exacerbated by restrictions on new house building, which has raised some concerns of an overheating market, the addition of buy-to-let deals has broadened the scope of the market and offered more diversity to investors.  High demand for prime office space in Amsterdam and in other major cities has also fed through to more commercial real estate transactions, which is another recent development marked by the entry of foreign banks alongside some new market participants.  

The securitisation of non-performing loans remains an important potential solution to the difficulties faced by banks across Europe, particularly in the Eurozone.  In this sector, a uniquely Dutch vehicle has been exceptionally popular, notably in Italy where the banking industry has been under significant stress and many banks are in need of a mechanism to get these bad loans off of their balance sheet.  The Dutch Stichting (foundation) has been used for centuries and today it is a popular vehicle for charitable giving, asset protection and structured finance, in addition to holding interests of the Dutch state in rescued financial institutions.  As a legal entity with no members or share capital, it has been successfully deployed by Dutch companies as an anti-takeover vehicle.  This popular multipurpose vehicle also works well as the shareholder of orphan securitisation vehicles and as a bankruptcy proof depository of intellectual property rights or for retaining assets in trust for investment funds.  The ability to service this vehicle all over Europe adds to its attraction and the Maples Group is routinely engaged as share trustee and security trustee on such transactions.

As an influential member of the EU, the past two years in the Netherlands have been squarely focused on issues related to Brexit and any impact that the UK's departure from the EU may have.  From first glance the situation seems to be one of opportunity for the Netherlands, amid reports that some 100 companies with operations in the UK have opened offices in the Netherlands because of Brexit, according to the Netherlands Foreign Investment Agency.  Norinchukin Bank, one of Japan's largest, said last year it would establish a wholly owned subsidiary in Amsterdam in response to the UK's intent to withdraw from the EU.  That followed a similar announcement from MUFG, Japan's biggest bank, which cited the ability to continue to serve customers in the EU after Brexit.  The Royal Bank of Scotland is another major financial name that is scaling up in the Netherlands to make Amsterdam its post-Brexit EU hub.

In addition to the Netherlands' specialism in financial services, electronic trading, financial data, and exchange and trading infrastructure, which many of these companies are involved in, the Netherlands was also able to benefit from the relocation of the European Medicines Agency from London, which Italy had also been courting, and in turn will attract more research firms and investment in the biosciences field.  The Netherlands' buoyant technology sector is another hot spot in the modern economy, with companies like semiconductor supplier ASML, alongside gaming companies, app developers and computer science firms.  

On the regulatory front, a number of EU directives have influenced Dutch legislation.  In line with many European nations' response to the EU 4th and 5th Anti-Money Laundering Directive, the Dutch government is introducing a register of the ultimate beneficial owners of companies, which requires all newly registered companies to comply with the bill following its implementation, which is expected in Q2 2020.  Existing companies must register their beneficial owners ultimately by the middle of 2021.  While some of the information, such as the ID records of the ultimate beneficial owner will only be made available to regulatory authorities, the basic information, including name, country of residence, nationality and extent of ownership, will be publicly available.

The Netherlands is also introducing legislation on the mandatory exchange of information about cross-border tax advice, related to the European DAC6 directive against aggressive tax planning.  This will require disclosures to be made when certain hallmarks are present, such as the transfer of a payment to a company in a low tax jurisdiction.  Stiff penalties – up to €830,000 – may be levied for incorrect or incomplete filings.

Furthermore, economic substance requirements, which seek to ensure structures are set up for valid purposes and reflect real economic circumstances, being introduced across international financial centres worldwide are also in focus in the Netherlands.  In addition to the core requirements, two other significant conditions have to be met, with relevant entities required to have employees on the payroll earning €100,000 and its own equipped office space to undertake its activities.  As such, we have seen more companies take these steps in order to remain compliant and continue to avail of the Netherlands' network of tax treaties. However, that is not necessarily a given in the current circumstances.  The European Commission's proposal to prevent companies from avoiding taxes by shifting profits to countries with lower taxes raises questions for many firms about the validity of the tax deals they have in place with individual EU nations and certain financial structures may require re-examination.  The Maples Group's expertise in structuring deals in the Netherlands and across key European nations combined with our global legal capability ensures we are able to guide clients through the rapidly changing fiscal landscape and advise on the most appropriate structures and their implementation.

In essence, the raft of regulatory changes over the last number of years, which shows no signs of slowing down, highlights the need for a strong, secure, institutional class fiduciary partner for companies, investment managers and financial institutions undertaking cross border business.  The Maples Group's independent directors and professionals in the Netherlands have a great depth of experience across a variety of fields, including accounting, law and investment management, to expertly guide clients through the ever-evolving regulatory landscape and ensure accurate and timely compliance with all requirements to the highest standards of corporate governance.

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