The major advances achieved by leftwing political parties in the most recent general election held in the Netherlands in November 2006 might have represented the first hint to private equity practitioners in the country that the prevailing favourable tax regime for their carried interest schemes was under threat. If the hint wasn't taken at that point, perhaps it was when Elly Blanksma, a senior politician with the coalition government-leading Christian Democrats, referred to the “ransacking of the country” by hedge funds and private equity groups. This outburst, in April 2007, coincided with private equity representatives being hauled before the Hague Parliament to justify certain of their dealings with the Dutch business world.

Since then, private equity has come under even closer scrutiny – and you probably won't find any Dutch GPs now labouring under the illusion that the status quo in relation to their tax affairs can be maintained. On May 13 (unlucky for some), proposals were forwarded to the Dutch Parliament relating to a new tax regime for socalled “lucrative interests”. These “interests”, which include profits generated by carried interest schemes, will, under the new regime – slated to come into force on January 1 2009 – be taxed as ordinary income at rates of up to 52 percent.

The proposals are currently residing in the second chamber of Parliament, which has the power to make changes (though few observers are expecting any of substance). They will soon be transferred to the first chamber, which can either approve or reject the proposals but not make further alterations. Given the government's majority in the first chamber, no obstacles to progress are anticipated at that point.

The good news is that, with a little help from legal experts, schemes can in most cases be structured to qualify for a flat rate of tax at 25 percent – broadly in line with the treatment of carry schemes in the private equity market s of other cont inental European countries such as France and Germany. It could be argued that the previous regime of 1.2 percent tax on carried interest (an ‘annual wealth tax’) means this good news is of a highly qualified nature: however, while not exactly a loophole, nor was the previous regime ever likely to survive serious political scrutiny.

Beyond the headline tax rate, however, there are other aspects that certainly qualify as bad news. Says Marco de Lignie, a member of the tax practice group and head of private equity at law firm Loyens & Loeff: “The level of tax is probably not the main issue as far as most of those affected are concerned. The real problem is that the legislation is retroactive and poorly drafted.”

Particular criticism has been reserved for the backward-looking element of the proposals, by which the value of any existing lucrative interest will be fully taxed on realisation after 1 January 2009. Points out Boris Emmerig, a tax partner at law firm DLA Piper in Amsterdam: “You might have entered a carry scheme in 2003, but all the incentives from the scheme will be taxed under the new regime from 2009 onwards. There is no ‘stepup’ arrangement to ease the financial pain.”

Nor is this punitive approach necessarily surprising: after all, being seen to inflict some pain appears to be a key motivating factor behind the exercise. Emmerig says that there is “unrest in society” about sky-high salaries and financial incentives of various kinds and that, as a result, people want to see “blood on the carpet”. Much of this anger has resulted from arguably excessive payments to board members of public companies – particularly when those payments do not necessarily appear linked to good performance. The controversy reached a crescendo when former ABN Amro chairman Rijkman Groenink netted around $34 million (€21 million) following the bank's sale to a consortium of rivals last year.

Adds Emmerig: “The government wants to give the signal that something is being done.” As Dutch legal experts are quick to point out, however, the credibility of a tax regime can quickly be sacrificed in the pursuit of a swift reaction arguably designed to play to the gallery. As mentioned earlier, the drafting has been criticised as less than precise. In certain circumstances, for example, it seems unclear whether or not income is able to qualify for the flat rate rather than ordinary income. Dutch private equity association the NVP has been pressing for a number of clarifications.

As Dutch GPs await final confirmation of the tax changes, they are forced also to contend with adverse market pressures. As in many other private equity markets in Europe – and, indeed, around the world – there are two main preoccupations at the current time: the debt markets and a worsening economic outlook.

In relation to the former, a fairly typical view expressed by a source in the market is that banks in the Benelux region are prepared to underwrite up to about €30 million to €35 million of debt each and that“for €250million of debt, you will probably need seven or eight banks”. Not surprisingly, therefore, the larger deal market is subdued. The only deal of real heft so far this year was completed back in January when CVC Capital Partners acquired a 73 percent stake in supermarket group Schuitema from food group Ahold for just over $1 billion.


Announcement Target Target Acquiror Deal
Date Nationality Value $(m)
09-Jul-07 Univar Netherlands CVC Capital Partners 4,478
Parcom Ventures
14-May-07 Endemol Netherlands Mediacinco Cartera 3,556
Entertainment Cyrte Fund
Holding (99.7%) GS Capital Partners
28-Nov-07 Stork Netherlands Candover Investments 2,548
Landsbanki Islands
Eyrir Fjarfestingarfelag
01-Jun-07 HEMA Netherlands Lion Capital 1,479
04-Jul-07 Taminco Belgium CVC Capital Partners 1,089
23-Mar-07 Wolters Kluwer Netherlands Bridgepoint Capital 1,035
(Education division)
21-Jan-08 Schuitema Netherlands CVC Capital Partners 1,017
20-Jul-07 Bureau van Dijk Belgium BC Partners 967
17-Apr-07 Norit (IBO) Netherlands Doughty Hanson & Co 813
23-Jul-07 Schoeller Arca Netherlands One Equity Partners 592
Systems (Majority%)


Announcement Date Deal Value ($m) No.
2004 Q1 3,642 13
2004 Q2 4,313 14
2004 Q3 4,289 10
2004 Q4 1,714 10
2005 Q1 560 17
2005 Q2 9,571 24
2005 Q3 6,003 23
2005 Q4 1,275 17
2006 Q1 14,353 19
2006 Q2 1,259 20
2006 Q3 18,844 20
2006 Q4 3,322 24
2007 Q1 1,532 26
2007 Q2 6,369 17
2007 Q3 8,484 19
2007 Q4 2,967 18
2008 Q1 1,900 15
2008 Q2 375 8
Total 90,769 314

Meanwhile, Rob Thielen, managing principal at Bussum-based mid-market GP Waterland Private Equity, insists that his firm's specialisation in buy-and-builds stands it in good stead in today's environment. “Banks still want to get capital out and they'd rather put it in deals they have comfort in. They've seen what we've done – for example with our buildup of retirement homes in Belgium [Senior Living Group] – and they're happy with it. There's less risk for them in supporting that kind of strategy than putting debt into new deals.”

Thielen adds that a deteriorating economic situation will also present opportunities in due course: “My view is that we will move into recession fairly shortly and that it might end up being deeper than many people seem to think. We are happy to have a big war chest [Waterland closed its fourth fund on €800 million in June this year] because we think in the next three to six months there will be issues relating to companies that will present opportunities across the spectrum.”

Another firm happy to allocate a portion of its war chest to the Benelux region is Summit Partners, the US and London-based private equity firm that closed a €1 billion European fund in April this year – two months before it completed the buyout of Amsterdam-based electronic trading firm Flow Traders for an undisclosed sum.

Han Sikkens, a vice president at Summit Partners, says Flow Traders is majority owned by its founders, who have “built a sizeable business in a short period”. He adds that achieving above average growth, combined with a focus on growing internationally (a necessity given the small size of the domestic markets), are quite common characteristics of medium-sized Benelux businesses.

Amid a tax clampdown and the worst set of economic circumstances for some time, these fundamental strengths will be tested to the limit.