Dutch PE group plays defense against proposed reforms

In response to proposed regulations that would limit the tax deductibility of interest payments and expand union rights, industry trade body NVP is encouraging private equity firms to speak up in defense of the industry.

The Dutch Private Equity and Venture Capital Association (NVP) has issued its response to a Dutch Labour Party (PvdA) green paper proposed in late December, which outlined a 12-measure reform plan for private equity in the Netherlands.

The green paper was introduced by Dutch Labour MP Henk Nijboer after he previously stated that the party wanted to put a stop to the harmful practices of “so-called private equity funds,” according to a PvdA blog post in August.

In response to the proposed reforms, which include limiting the tax deductibility of interest payments, evaluating rules around fund manager responsibility and expanding the rights of works councils, the NVP will update its code of conduct and create an informative document for works councils explaining their rights and what they can and cannot do when a company faces a takeover.

Recently, negative press about distressed portfolio companies and the bankruptcy of Sun Capital-owned Dutch high street department store V&D in December have led many in the Netherlands to believe that the sector is having a negative impact on the economy.

As a part of the new measures, the trade body is encouraging greater communication about private equity to those outside of the highly private industry, Tjarda Molenaar, managing director of the NVP told pfm.

Out of the 12 reforms, Nijboer proposes four that are tax-related, three focusing on repairing loopholes found in the tax law relating to the way private equity firms use interest deductions and one asking that impact of tax initiative base erosion profit sharing (BEPS) on the industry be evaluated.

He also suggests that the country’s works councils, the trade unions that represent employees, should have more rights at the time of investment by private equity firms and should be better informed about the financial structure, strategy and agreements between the board and shareholders.

Nijober proposes that private equity firms should follow standard reporting guidelines about costs, to increase transparency and asks pension funds that invest in private equity, to provide data on performance and costs in their annual reports.

Currently in the Netherlands, there are rules in place around the responsibility and accountability of shareholders and mangers of portfolio companies, but as part of the reforms Nijober asks for these rules to be evaluated and tightened.

Private equity plays an important role in the Netherlands, with hundreds of thousands of people currently working for a private-equity owned company.

Nijboer’s reform efforts have drawn support from some of the most influential voices in the Dutch private equity community, including pension fund PGGM. In November, chief investment officer of private markets at Ruulke Bagijn said that Nijboer “rightly draws attention to excesses in private equity” and that his proposed legislation will help to avoid the possibility that private equity might “derail in the Netherlands.”

The green paper reforms are due to be evaluated in March, when the Labour party will have the opportunity to defend its proposals to the other members of the parliamentary financial committee.