Regulation of M&As in the Netherlands

Svitlana Bakhshaliieva 876565

Lorenzo Bertuola MATRICOLA
As the Netherlands is a member of the European Union many branches of Dutch law are
shaped and regulated by EU regulations. In addition, the legislative acts of the European Union
are acts of direct action on the territory of the country.
In accordance with EU legislation, the European Commission or authorized national
authorities must approve any large-scale takeover or merger before it is made. The aforementioned
authorities check whether the acquisition or merger does not lead to the emergence of a monopoly
in the markets where these companies operate.
EU REGULATION PART
Moving on to the legislation regulating mergers and acquisitions in the Netherlands in
particular, it is worth noting that private M&As are not governed by certain rules (except for legal
mergers, to which strict specific rules apply). Private M&As are governed by the general
legislation of the country, in particular general contractual and corporate law, as well as certain
provisions of the property law. State M&As are governed by the Law on Financial Supervision
and by-laws. In addition to generally applicable legal norms, M&As are governed by:
 Competition law;
 The Workers’ Council Act and the Social and Economic Council Code on Mergers;
 sector-specific rules (for example, operations in the defense, energy, financial, and
medical sectors may be governed by specific rules)
Concerning the way to buy a company, it is important to specify that there are companies
which are included and not included to the special list. Companies included in the list (named
recognized sponsors) pay additional fee (several thousand euros), provide necessary documents
and pass the test to get the special treatment.
A company included in a special list may be acquired by filing a public takeover application
or by conducting the asset transaction. As a rule, the decisive factors for choosing a particular
transaction structure are tax, the nature of the assets and liabilities of the company and shareholder
structure of the company.
There are three ways to buy a company which is not included in the special list:
 transactions with shares, through which the company's shares are sold and
transferred to the buyer;
 transactions with assets, in accordance with which assets and liabilities are sold and
transferred individually to the buyer;
 legal merger, through which the company is merged with the acquiring company
(or new company) and the old one ceases to exist.
In accordance with the laws of the Netherlands, the acquirer has the right but not the
obligation to obtain information about the object of acquisition. Among other things, it will greatly
simplify the procedure for filing claims during the transaction. As a rule, information of interest
can be obtained from various public registries or by submitting an official request to the relevant
company listing all the issues that have arisen.
In order to complete a successful takeover of companies in the Netherlands, it is necessary
to go through several stages, which basically constitute a procedure that varies depending on the

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type of activity the company conducts, its scale of the company etc. Therefore, the M&A procedure
in the Netherlands consists of the following major steps:
The initial stage in conducting mergers and acquisitions are preliminary confidentiality
agreements (non-disclosure of information), as well as various agreements of intent. Signing a
non-disclosure agreement, both sides protect themselves from the machinations of competitors.
According to the contract, the parties bear material and criminal liability for violation of its content.
The Declaration of Intent (DoI) allows the parties to establish a clear legal time and
conditional framework for the dialogue until the merger takes place. In the declaration it is worth
describing what the parties intend to discuss, the purpose and also the dates when the negotiations
should be completed and on what grounds each of the parties can complete their conduct.
The second stage of the process is the expertise which is considered as an essential tool
throughout the world. It is expertise that makes it possible to realistically assess the state of the
company, its financial strength, as well as the prospects and risks of buying.
The expertise is aimed at obtaining the following information:
1. Financial status of company accounts;
2. Type of insurance;
3. Potential losses;
4. Human resources involved in the enterprise;
5. License rights;
6. Exclusivity of technology and trading potential;
:
7. The true value of the enterprise.
This assessment, as well as the study of these and other aspects allows not only to make a
final decision on the purchase, but also to justify the price.
The examination is conducted by a manager, which allows to correct all errors in a timely
manner. If necessary, restructuring helps to conduct successful negotiations with maximum
benefit. Research by the direct owner helps to come to a common denominator faster and draw up
a purchase agreement on equally favorable terms.
The next step is a purchase agreement which is the most important document in M&A
process. This stage consists in drawing up a contract. Each point must be agreed and include not
only the conditions of purchase, but also provisions on risks, distribution of responsibility, etc. In
the purchase agreement it is specified how each of the parties is obliged to act in a particular case,
what cases are considered as insurance case and to whom responsibility is distributed when they
occur.
Unlike the auction process, where the seller usually submits a draft purchase agreement,
the first draft of the purchase agreement is usually prepared by the buyer. An acquisition agreement
usually includes the following key provisions:
 the parties of it;
 the object (i.e. description of the target company or assets);
 the purchase price and the effective date of the transaction;
 any preconditions;
 preliminary covenants;
 closing mechanics;
 warranties and limitations of liability;

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  specific refunds;
 obligations to be fulfilled after completion of the transaction;
 other provisions (for example, confidentiality, purpose and allocation of costs,
applicable law and dispute resolution).
After approval of the abovementioned document, a share or asset purchase agreement is
concluded on the purchase of shares in the company or its assets, depending on the type of
ownership that the company has. This agreement does not imply a physical transfer of
documentation defining the right of ownership and disposal of property owned by the company.
In addition, the transfer of ownership of shares requires a notarized deed of transfer, and in
the case of a transaction with assets, the transfer of legal ownership of each individual asset must
be evaluated and may require additional documentation.
When the negotiation of the price, the date of transfer of the assets and the shares, as well
as the additional conditions are agreed, the parties proceed to sign the purchase agreement. The
acquisition process itself may take place much later, depending on the conditions specified in the
contract.
The final step is a conclusion of the transaction which takes place upon completion of the
settlement of all its details. At this stage, the shares are physically transferred to the new owner for
the exchange of the actual payment to a personal account or in cash (as indicated in the contract).
In the Netherlands, a notary must be present to complete the transfer, who will certify the
completion of the transaction by additional acts and will manage the entire process. This method
of transferring the company helps to prevent fraud on both sides.
In the process of mergers and acquisitions, companies are faced with certain features of
taxation.
The first kind of a tax is Corporate Income Tax (CIT). Its rates in the Netherlands are 20%
of the first 350,000 euros and 25% of the profits exceeding this threshold. The seller in the
Netherlands is usually exempt from tax on the sale of shares of the target company because of the
application of the rule of full exemption of dividends from taxes, unless the target company is a
passive investment company with a low tax level.
In the case of an asset transaction, the difference between the tax book value and the
purchase price is included in the taxable income of the seller. In the case of a legal merger, if the
company ceases to exist, it is considered that it has sold its assets. The difference between the tax
book value and the real value of the assets is included in the taxable income of the object.
The second tax is Value Added Tax (VAT) which has the total applicable rate of 21%. The
sale of shares and assets is not subject to it. VAT on the value of the transaction, as a rule, is
refunded, except for the case of transactions with shares, where restrictions apply.
The last tax is real estate transfer tax and other registration fees. When purchasing a
property, a transfer tax of 6% is paid. When acquiring shares of a Dutch company, the real estate
transfer tax is paid by the buyer only if the assets of the object constitute at least 50% of the real
estate.
To sum up, it can be noted that, by the example of the European jurisdiction considered,
the institution of M&A transactions in the Netherlands is legally regulated up to procedural issues,
taxation, etc.