Changes to the transfer tax in the Netherlands has serious implications for the sale of shares in an entity qualifying as a 'real estate entity,' according to RechtStaete real estate lawyers & tax advisers. The new regime was outlined in the Dutch budget on Tuesday and will come into operation on 1 January next year.
Changes to the transfer tax in the Netherlands has serious implications for the sale of shares in an entity qualifying as a 'real estate entity,' according to RechtStaete real estate lawyers & tax advisers. The new regime was outlined in the Dutch budget on Tuesday and will come into operation on 1 January next year.
As things stand at the moment transfer tax can be avoided by real estate entities by issuing various types of shares. Under such structures the share capital of the real estate vehicle usually consists of less than one-third ordinary shares which represent the actual stake in the company (the real estate) and for more than two-thirds of preference shares, which pay a fixed dividend as a percentage of the nominal capital. Before a sale of the shares in a vehicle, new preferential shares can be issued or the ordinary shares can be converted into preference shares. Buyers who acquire only ordinary shares, accounting for less than one third of the issued share capital, do not have to pay transfer tax, while in fact they have obtained the 100% interest in the real estate.
Preference share structures are also used to avoid the so called consolidation requirement in order to establish whether an entity qualifies as a real estate entity for Dutch real estate transfer tax. In the event less than one third of the shares of a subsidiary are held the subsidiaries' assets do not need to be consolidated but only the fair market value of the shares in the subsidiary must be taken into account( which is very low if the subsidiary is highly leveraged). The consequences of this are that the parent company most likely (in case the value of all assets of the parent company consist for more than 30% of non Dutch real estate assets) does not qualify as a real estate vehicle. The acquisition of shares in the parent company can than take place without the imposition of transfer tax, while in fact more than one third of the actual interest in the real estate of the subsidiary is obtained.
By Ton Oostenrijk, partner of RechtStaete real estate lawyers and tax advisers in Amsterdam. Click on the link below for more information on RechtStaete.