NVP seeks talks over Dutch tax increase

01 June 2008

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Private equity is under the spotlight after a new tax project was presented by Dutch finance minister Wouter Bross in mid-May. The Dutch Venture Capital Association, NVP, is seeking discussion with the government and the parliament over the project amid rising fears in the industry.

The new tax project increases taxes for leaving remuneration, pension contributions made by companies for employees and for carried interest. Of these three measures, only the latter concerns the private equity industry, as carried interest covers the profit paid to managers of private equity funds. According to the bill, the tax on carried interest could be increased to a maximum of 52% from its current 1.2% rate.

Tjarda Molenaar, NVP's director, considers that "clarification is needed on the state of law. Many points over taxation in the industry are still uncertain which makes new regulations welcome. However the project equally raises new uncertainties, especially considering that the government plans to adjust tax rates regularly." First, if the law is passed, it will come into effect on 1 January 2009. A major concern is that the law will have a retroactive effect, which is "a bad sign for entrepreneurs in the Netherlands and for foreign investors, if not unfair."

Secondly, the proposal affects fund managers but it also management buyout teams. This rule is threatening for entrepreneurs, especially from the cleantech and biotech industry, which has a considerable presence in the country. It is important to know exactly who is concerned by the new law and how far the new rules would affect founders investing in their own company. Molenaar reminds that the NVP was previously told by the government that the project would not apply to this last category.

The tax increase is said to be a response to accusations that some managers receive excessive pay. Molennar thinks that "two out of the three measures are indeed in reaction to abuses in quoted companies. Private equity has been drawn into this debate." This is the reason why the advisory board on legal issues of the Parliament suggested the private equity industry should be excluded from the bill.

The new project will be discussed at Parliament in the following weeks.