IN HOLLAND? WHY INVESTGuidelines for intercompany pricing are given by extensive policy based upon...

WHY INVESTIN HOLLAND?Corporate Income Tax

IntroductionNetherlands Foreign Investment Agency (NFIA)The NFIA (Netherlands Foreign Investment Agency) is an operational unit of the Dutch Ministry of Economic Affairs.The NFIA helps and advises foreign companies on the establishment, rolling out and/or expansion of theirinternational activities in the Netherlands. The NFIA was established more than 35 years ago, and has since thensupported thousands of companies from all over the world in the establishment or expansion of their internationalactivities in the Netherlands. Besides its headquarters in The Hague, the NFIA has its own offices in the UnitedKingdom, Turkey, North America, Asia, the Middle East and Brazil. Additionally, the NFIA works together with Dutchembassies, consulates-general, and other organizations representing the Dutch government abroad, as well aswith a broad network of domestic partners.

Please be sure to stay in touch with your NFIA representative in order to keep up to date with any changes in theinformation which may occur over time and to visit your regional NFIA website for the latest news on business andinvestment opportunities in the Netherlands (all NFIA website addresses can be found on www.nfia.nl).

The inform ation containe d in the se fact she e ts has be e n com pile d with gre at care by the Ne the rlands Fore ign Inve stm e nt Age ncy and isaccurate to the be st of its knowle dge at the tim e of com pilation. Howe ve r, this docum e nt is provide d for inform ational purpose s only andno rights can be de rive d from it. Com pile d on 23 Apr 20 15.

http://www.nfia.nl/

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WHY INVEST IN HOLLAND?

Table of contents

Corporate Income TaxPlace of residenceResident corporate taxpayersNon-resident corporate taxpayersCorporate income tax rateAdvance tax rulingsCorporate income tax basisTransfer pricing - at arm's length principleCapital gainsTreatment of lossesLimitations on the deduction of interest

Profit participating loansLoans connected to "tainted" transactionsLong term interest free loansInterest deduction denial rules for excessive participation financingInterest deduction denial rules for acquisition holdingsHybrid loansNon-businesslike loans

Participation exemptionObject exemptionFiscal unitySubstance requirements for Dutch Group Financing and Licensing companiesInnovation Box

Participation ExemptionConditions

Motive testAsset testSubject-to-tax test

Deductions of costsCurrency exchange losses and participation exemptionInterest deduction denial rules on excessive debt financingLoss utilizationDeduction in case of liquidation ("liquidation loss" rules)

Dividends: The Parent/Subsidiary DirectiveObject Exemption

Object exemption"Passive foreign portfolio investment enterprises"Final losses

Calculation of Corporate Income TaxTax yearCapital gains and lossesProvisionsExchange fluctuationsValuation of (in) tangibles

Real EstateOther business assetsGoodwillCosts for research and developmentParticipations

Valuation of inventoriesValuation work in progress

Corporate Entities and TaxationThe Dutch Permanent Establishment

Dutch permanent establishmentsDetermination of permanent establishment incomeOther operationsChanges in the rules for foreign substantial shareholders:

2122232323242424242424252525252525262727282828282828292929293030313233333333343434343535353636363838

Allowable Deductions (1): General RulesAllowable Deductions (2): DepreciationAllowable Deductions (3): Tax Free Reserve

Reinvestment reserveEqualization reserve

Allowable Deductions (4): OtherFormation expensesInvestment allowanceEnergy investment allowance (EIA)Environmental investments allowance (MIA)Interest, rent and royaltiesDirectors' remunerationTaxesBad and doubtful debtsPension contributionsOption plansCommissionsGifts

International Tax RatesThe Netherlands and its competitors:

Liquidations and ReorganizationPurchase of own sharesAcquisitionsEffect on individual shareholdersIndividuals holding shares as business assetsCompanies holding sharesMergersEnterprise mergerLegal MergerDivision (split-off or split-up)Rules of company lawRules of tax law

Losses (1): Carry-back and Carry-forwardLosses (2): Group TaxationReturns, Assessments and Appeals

AssessmentsTax interest

Collection interestOther remarksTax interest and other taxes

AdjustmentsObjections to assessments and appealsDelays

Collection of taxTax Audits

Subsidiary versus BranchSubsidiary comparisonBranch Comparison

Taxation of Resident CompaniesCorporate income taxes in the Netherlands

Corporate Income TaxDutch corporate income tax is levied on the worldwide income of a corporation resident in the Netherlands(resident taxpayers). Furthermore, non-resident entities are subject to Dutch corporate income tax insofar theyderive certain specified Dutch sources of income in the Netherlands (non-resident taxpayers). This is for instancethe case if profits are attributable to a Dutch permanent establishment of a foreign entity.

Place of residence

Corporate income tax is levied upon both resident and non-resident taxpayers. Companies are considered Dutchtax residents if it can be demonstrated that they are effectively managed in the Netherlands. In addition,corporate taxpayers are, for Dutch corporate income tax purposes, deemed to be Dutch tax resident whenincorporated under Dutch civil law, even if the actual management is abroad. As a result, dual residency may occur.Dual residency of a company is normally avoided by tax treaty provisions in favor of the country where thecompany is effectively managed.

Resident corporate taxpayers

Resident corporate taxpayers are subject to Dutch corporate income tax on their worldwide income. Suchcompanies may also be subject to foreign corporate income tax on their profits earned outside the Netherlands. Inorder to avoid double taxation, Dutch tax law contains various rules that exempt income that has already beentaxed or is subject to taxation in another country. This avoidance of double taxation is provided for in theparticipation exemption, object exemption, bilateral tax treaties or the Unilateral Decree for the Avoidance ofDouble Taxation.

Non-resident corporate taxpayers

Non-resident corporate taxpayers are non-resident entities, which receive income from certain specified Dutchsources such as:

Business income from a Dutch permanent establishment or from a Dutch permanent representative.Income from immovable property located in the Netherlands.

Non-resident corporate taxpayers are normally subject to corporate income tax for their Dutch-source income.The profits of a Dutch permanent establishment are determined according to Dutch (tax) rules, as if it were anindependent company. Interest or similar charges (e.g. royalties) from the head office are non-deductible, unless itcan be proved that these charges are based upon transactions made by the head office specifically on behalf of thepermanent establishment. A deduction from taxable profit is allowed for head office expenses incurred from thirdparties that can be attributed to the activities of the permanent establishment. There is no withholding tax onpayments to the head office. In case of a branch of a foreign entity, corporate income tax may be avoided if theactivities in the Netherlands do not constitute a permanent establishment (i.e. a fixed place of operation throughwhich the business of a foreign company is carried on) or a permanent representative (i.e. a person who has theauthority to conclude contracts on behalf of the foreign principal) as defined in the tax treaty concluded betweenthe Netherlands and the state of residence of the foreign corporation.

Until 1 January 2013, according to Dutch tax law, non-resident entities that performed activities as director orcommissioner of a Dutch company were taxable in the Netherlands. As of 2013 this rule has been amended in sucha way that the current rule regarding the taxation of the remuneration for statutory activities of the directors orcommissioners has been extended and includes also the remuneration for the actual management activities ormanagement services. It should however be assessed whether the Netherlands is actually allowed to levy taxesunder the applicable tax treaty. In case there is no tax treaty applicable, the Netherlands will levy tax.

Corporate income tax rate

Corporate income tax is levied at the following rates (2015):

20% on the first EUR 200,00025% on taxable profits in excess of EUR 200,000

A special optional tax rate may be elected for (patented) intangible assets (Innovation Box). In this box, the netincome from intellectual property will be taxed at an effective tax rate of 5% .

Advance tax rulings

Page 2 of 3 9Corporate Incom e Tax

More important than the statutory corporate income tax rate are the effective tax rates, i.e. what tax paymentseffectively will amount to as a percentage of commercial profits. In this respect, there are various tax planningtechniques available when operating in or through the Netherlands to mitigate the effective tax rate on thewarehousing, distribution, sales and manufacturing activities of a company in the Netherlands. In order to knowwith certainty (in advance) what the Dutch tax position of a Dutch office will be, an advance tax ruling from the taxinspector may be obtained.

Corporate income tax basis

Corporate income tax is levied on resident and non-resident companies. Resident companies are subject to tax ontheir worldwide income. However, double taxation of foreign-source income will normally be avoided by theparticipation exemption, the object exemption, tax treaties or the Decree for Avoidance of Double Taxation. Non-resident companies, mainly the branch offices of foreign companies doing business in the Netherlands, are taxableonly on income derived from sources in the Netherlands.

In general, Dutch corporate income tax law makes no distinction between capital gains and other profits. Profitsare in principle part of the taxable income in the year during which they are realised, whereas costs can bededucted in the year to which they relate. Annual taxable income should be calculated in accordance with "soundbusiness practice" and in a consistent manner. The concept of sound business practice is not defined in law and ispredominantly developed in case law. It is based on generally accepted accounting principles, with certainadjustments for tax purposes. A change in the principles for calculating the taxable income is allowed if and insofaras it is in conformity with sound business practices and is not done in order to achieve a (one-time) tax advantage.These rather general tax law provisions allow Dutch tax authorities to apply a pragmatic attitude towards taxableprofit calculations. It is common practice to negotiate advance agreements with the tax inspector regardingelements of the method used to calculate taxable profit, such as the moment of profit recognition, intercompanytransfer pricing and intercompany cost-sharing arrangements. As a consequence, a considerable freedom exists inadopting a suitable system as long as it is in accordance with "sound business practice". As a result of internationaldevelopments, the Netherlands has, incorporated transfer pricing regulations in its tax law, as a way to build amore legalistic foundation of the 'sound business practice' philosophy.

Transfer pricing - at arm's length principle

Dutch corporate income tax law contains the provision that intercompany pricing for goods and services must beat arm's length. What does the at arm's length principle imply? The at arm's length principle in general means thatthe terms and conditions of transactions between related companies should be similar to the terms andconditions of the same transactions concluded between independent third parties. The transfer pricingdocumentation should be kept on file to demonstrate the at arm's length nature of transactions between affiliatedparties.

Guidelines for intercompany pricing are given by extensive policy based upon the arm's length principles forintercompany pricing as contained in the OECD model tax treaty and the OECD transfer pricing guidelines. Specialrules and guidelines are provided for intra-group financial services companies, which include group financing androyalty companies. It is noted that it is possible to obtain advance tax rulings and/or advance pricing agreementson transfer pricing issues with the Dutch tax authorities.

Capital gains

Capital gains and losses are included in ordinary taxable income. The general rule of sound business practice is thatcapital gains are not taxed until they are realized, but capital losses may be deducted as soon as they canreasonably be expected.

In addition, short-term receivables/claims in foreign currencies (e.g. receivables in foreign currencies which aredirectly available on demand) should - in accordance with sound business principles - be valued at the currentvalue. This is based on a Court decision. This means that gains and losses should be taken into accountimmediately. For long-term receivables in foreign currencies, the rules of sound business principles do not opposeagainst a valuation of such a receivable/claim at the exchange rate on the balance sheet date. Based on theprudence principle, it is defendable that such a long-term receivable in foreign currencies is valued based at thehistoric value or the lower current value.

If there is a genuine intention to replace an asset with another (economically comparable) asset, any gain arisingon its sale or disposal may be placed tax-free in a re-investment reserve. The capital gain or loss on the disposal ofa substantial shareholding however is exempt under the participation exemption.

Treatment of losses


There is a possibility to settle losses with taxable amounts and vice versa. Both resident and non-residenttaxpayers have a loss carry-back possibility of one year and an carry-forward possibility of nine years. The lossesneed to be confirmed by the tax inspector by means of a loss decree.

Limitations for loss carry-over can apply when there is a significant change in ultimate shareholders and, in relationto that, the company ceases their business activity or reduces its business by more than 70% . In case of ceasingbusiness activities, losses may only be carried forward if at least 70% of the shares are still held by the sameindividual shareholders. If the business is reduced by more than 70% and less than 70% of the shares are held bythe same shareholders, losses incurred up to and including the date the shares have been transferred can nolonger be offset against future profits.

For holding companies and group financing companies an additional limitation applies. Such companies are onlyallowed to compensate their tax losses incurred in a certain year with taxable profits generated in years in whichsimilar activities are conducted (and the balance of the receivables and liabilities on related parties of the Dutchcompany at the end of the financial year in which a taxable profit has arisen may not exceed the balance of thereceivables and liabilities of the financial year in which the taxable loss was incurred, unless the taxpayer is able tosubstantiate that the change in the balance of the receivables and liabilities was not mainly intended to increasethe loss settlement possibilities). This loss limitation rule does not apply if at least 25 employees of the Dutchcompany (calculated on a full time basis) are involved in other activities.

Limitations on the deduction of interest

Generally interest expenses are tax deductible. However, it is noted that various limitations can be derived fromeither the Dutch tax law as well as case law. In tax law, the following limitations on the deduction of interest areincluded:

Profit participating loans;Loans connected to "tainted" transactions;Long-term interest free-loans;Interest deduction denial rules for excessive participation financing; (This rule applies as of 1 January 2013;or later, if the book year deviates from the calendar year)Interest deduction denial rules for acquisition holdings.

Furthermore, in case law interest payments on so-called hybrid loans, being a loan with certain equity features, arenot tax deductible. Instead, interest payments on such a loan are re-qualified into dividend. According to Dutchcase law (ruled by the Dutch Supreme Court) there are three types of hybrid loans:

Sham loan (this is applicable if a group company grants a loan to a company in either a sham transaction andit was intended to be equity from the beginning, but was called a loan for tax reasons);"Bodemloze put" loan (in this situation a third party would not have granted a loan because it is clear fromthe start that the financial position of the debtor will not allow a repayment of the loan;Profit participating loan (a reference in the Dutch Tax Act is included as well).

In case law also new boundaries are defined for so-called non-businesslike loans.

Profit participating loans

In Dutch tax law a reference is included that a profit participating loan and as such a profit participating loan is to betreated as equity for Dutch tax purposes. A profit participating loan has the following three characteristics:

the payment of the consideration for the loan is (for a significant part) profit dependent;the loan is subordinated to all ordinary creditors; andthe loan does not have a fixed term, but is only repayable in the event of bankruptcy, moratorium onpayments or liquidation or the loan has a term of more than 50 years.

Note that if and insofar a Dutch taxpayer or a party related to the Dutch taxpayer has a qualifying participation inthe debtor, interest received is then tax exempt at the level of the Dutch taxpayer (due to the application of theparticipation exemption), regardless of whether the (foreign) debtor is allowed to deduct the interest.

Loans connected to "tainted" transactions

The Dutch Corporate Income Tax Act contains a provision stating that interest payments (including costs andforeign exchange results) on a debt from a related party or related individual is not deductible if the debt isconnected with one of the following "tainted" transactions:

The distribution or repayment of capital to a related entity or related individual;


A capital contribution to a related party;The acquisition or the expansion of an interest in a related party.

In certain cases the interest will still be deductible. This is the case, if the loan and the transaction in connectionwith which the loan is incurred are predominantly entered into for business reasons or the interest on this loan istaxed against a tax rate of at least 10% (statutory rate unless there that are significant deviations from the Dutchtax standards, then the effective tax rate must be calculated according to Dutch tax standards) at the level of therelated company that provided the loan. With respect to the latter, it is noted that this condition does no longerapply if the tax authorities can demonstrate that the loan or the transaction in connection with which the loan wasincurred, was not predominantly entered into for business reasons.

Long term interest free loans

Interest paid on a loan granted by a related party is not deductible if the loan has the following features:

The loan has no term or a term exceeding 10 years, andNo interest has been agreed upon or the interest agreed upon deviates considerably from an arm's lengthinterest rate.

Note that in case of a postponement of the due date of the loan, the loan is considered to be extended as of thedate of issuance of the loan.

Interest deduction denial rules for excessive participation financing

As of 1 January 2013 a new rule became applicable, which aims to deny (part) of the interest expenses and otherfinancing expenses for holding companies for tax purposes. The rule also limits third party debt financing (such asbank debt).

According to this legislation, excessive participation financing expenses are not tax deductible if and to the extentthe annual amount of these expenses exceeds € 750,000. Participation financing expenses of € 750,000 or lowerfall outside the scope of the new legislation; the amount of € 750,000 can be considered as a safe-harbor rule.

In case the annual amount of participation financing expenses exceeds € 750,000; it should be assessed how tocalculate the amount of non-deductible participation financing expenses. For this purposes, a mathematicalapproach applies. In order to determine the excessive amount of participation financing expenses, the averageamount of the accumulated fiscal acquisition price of the subsidiaries must be compared with the average amountof fiscal equity. The historical or factual relationship between subsidiaries and loans is in essence not relevant(albeit the exception for loans linked to investments which can qualify as a true expansion of the group).

In case the average amount of the accumulated acquisition price of the participations exceeds the average amountof equity of the taxpayer, the excess amount is qualified as "excessive participation debt". The amount non-deductible participation financing expenses is then to be calculated as the pro-rata share (excessive participationdebt / total debt year-average) of the accumulated participation financing expenses.

Exceptions

The law offers various exceptions which allow a reduction of the "excessive participation debt" and which will thusprovide for a lower amount of non-deductible participation financing expenses. The most important exceptionrelates to loans which can be linked to a "true expansion of the group". The expansion must relate to "operational"activities and should occur within a certain time frame preceding or after the date of investment.

It is noted that this exception does not apply if the funding of the Dutch holding company is structured in such away that the expense is also deductible elsewhere within the group (intentionally or not, which can be qualified asa double dip scenario) or if the structuring of the funding predominantly tax driven.

Other interest deduction denial rules

In case the interest expenses on debts are already non-deductible based on other interest deduction denial rules,these debts are not considered as debts for purposes of the participation financing expenses.

Exclusion active finance activities

In the legislation a special provision is included for active finance activities within the group. As such, qualifyingactive finance activities will not affect the limitation of the deduction of participation financing expenses.

Transitional provisions for existing holding companies


The law does provides for transitional arrangements for existing holding companies. For the calculation theexcessive participation financing expenses, 90% of the fiscal acquisition price of subsidiaries which were alreadyacquired, extended or equity was contributed, at the beginning of the fiscal book year starting on or before 1January 2006 may be deducted from the total acquisition price of the subsidiaries.

Interest deduction denial rules for acquisition holdings

There are restrictions to the deductibility of interest on loans received from a related company to acquire sharesin a resident company. An interest deduction limitation rule applies for so-called acquisition holdings. The interestdeduction on so-called acquisition debt will be limited if an acquisition is financed with debt and the acquiringcompany and the target company subsequently forms a fiscal unity on or after 15 November 2011 (or with which itwill merge on or after 15 November 2011). This measure also applies to legal mergers and division. Furthermore,this measure will also apply in case of third party debt financing (such as bank debt). The interest deductionlimitation rule works - in short - as follows:

Interest is deductible up to the amount of the own profits of the acquiring entity.There is an allowance that interest for an amount of € 1,000,000 (after calculation of the own profits of theacquiring company) is also deductible (franchise).If the interest exceeds the above amounts (e.g. own profits of the acquirer and the franchise), the interestwill also be deductible if the interest is not regarded as excessive acquisition interest. Excessive acquisitioninterest is the total interest payable on the excessive part of the acquisition loan with respect to theentities that forms part of a fiscal unity in the year at issue and in each of the previous years. The excessivepart of the acquisition loan is determined by taken into account a fixed percentage over the acquisitionprice of the target company. The fixed percentage is 60% in the first year, to be reduced to 55% in thesecond year, etc. until it reaches 25% of the acquisition price (seventh year).

Hybrid loans

According to Dutch case law (ruled by the Dutch Supreme Court) there are three types of hybrid loans:

Sham loan (this is applicable if a group company grants a loan to a company in either a sham transaction andit was intended to be equity from the beginning, but was called a loan for tax reasons);"Bodemloze put" loan (in this situation a third party would not have granted a loan because it is clear fromthe start that the financial position of the debtor will not allow a repayment of the loan;Profit participating loan (a reference in the Dutch Tax Act is included as well).

Non-businesslike loans

If a loan has been granted, it should be assessed whether this loan also qualified as a loan for tax purposes. Thismay be different if the loan actually functions as equity.

If a loan is recognized for tax purposes, it must be determined whether or not the funding instrument (loan) wasentered into on a basis of sound business reasons. In answering this question all particulars of the case at handshould be taken into account. Hereinafter, reference is made to a "businesslike" and a "non-businesslike" loan.

On 9 May 2008 the Supreme Court ruled in a particular case that the loan granted by the subsidiary to itsshareholder was a "non-businesslike" loan. There was no loan agreement, there was no fixed repayment scheduleand there was never any form of guarantee required or provided. The subsidiary reported an impairment loss in itsP&L. In this case there was a focus on the question whether the impairment loss could be taken into account. TheDutch Supreme Court decided that the impairment loss could not be taken into account. From the decision, itappears that decisive for not accepting the impairment loss was that a third party would not have entered intosuch "an agreement" and would not have accepted the risk regarding the granting of the loan (in Dutch"debiteurenrisico").

On 25 November 2011, the Supreme Court has also ruled in a few other cases relating to so-called non-businesslike loans. In essence, the decision in the case of 9 May 2008 still applies. However, in the cases dated 25November 2011 more clarity is provided relating to the non-businesslike loans. The Supreme Court ruled that incase there is a low interest, this interest should be made "businesslike", implying that an arm's length interestrate should be taken into account. Furthermore, it should be assessed whether there is a non-businesslike loan atthe date that the loan was made. It is possible that a loan will have to be qualified at a later stage as a non-businesslike loan, due to actions of the creditor. A loan must be in its entirety not qualified as non-businesslike. Itis not possible to split the loan in a partial non-businesslike and a partial businesslike loan. Finally, the SupremeCourt mentioned that in case the interest remains guilty, but is ultimately not paid, the interest is not deductible.

The aforementioned decisions (but any other decisions resulting afterwards) should also be considered for Dutch


tax purposes.

Participation exemption

The participation exemption provides for an exemption of all benefits at the level of a Dutch corporate entityarising from a qualifying shareholding. Benefits include cash dividends, dividends in kind, bonus shares, hiddenprofit distributions, interest on certain profit sharing loans and capital gains realized upon disposal of theshareholding. A capital loss resulting from disposal of a shareholding is similarly non-deductible (although a lossupon liquidation of a subsidiary can be tax deductible if certain conditions are met). The fact that capital gains areexempted by the participation exemption facilitates reorganization of a group structure and thus increases theflexibility of the group as a whole.

Object exemption

Dutch tax law contains a an object exemption for foreign permanent establishments. As such, all the income (i.e.profits or losses) of a foreign permanent establishment will be excluded from the Dutch taxable base. Final lossesof foreign permanent establishments will be deductible if certain conditions are met. A special regime applies forso-called "passive foreign portfolio investment enterprises". In that case the profits of the foreign permanentestablishment will be included in the Dutch taxable base, while - under certain conditions - a credit will be grantedfor the underlying tax.

Fiscal unity

Fiscal unity If a resident company holds (in)directly at least 95% of the share capital of one or more other residentcompanies, these companies may upon joint request apply to be treated as a fiscal unity. As such, the parentcompany must be the legal and economic owner of the shares. The ownership as stated above must represent atleast 95% of the statutory voting rights. This extension is included due to new Dutch Civil Law rules in which it isalso possible to have shares without voting rights. As such the extension aims to prevent shares without votingright to form a fiscal unity.

The parent company of a fiscal unity files a tax return on a consolidated basis. Fiscal unity allows the offset oflosses of one company against profits of another company in a particular year and a tax-free transfer of assets andliabilities and dividend distributions between companies that belong to it. This facilitates reorganizations. Afterdissolution of the fiscal unity, tax may become due on the hidden reserves of assets transferred within a fiscalunity. Losses of a company originating from tax years before the commencement of group consolidation may onlybe set off against profits of that company. Intra-group dividends are exempt from dividend withholding tax.

It should be noted that a fiscal unity also has disadvantages, e.g. all companies in the fiscal unity are fully liable forthe total corporate income tax debt of the fiscal unity. A fiscal unity is dissolved if the requirements are no longermet, or at the request of the taxpayer. It is possible that only part of the unity is dissolved. Losses incurred by thefiscal unity remain with the parent company, unless the parent company and the respective subsidiary ask the taxinspector to allow loss deduction in favour of the subsidiary to which the loss belongs.

Furthermore, it is noted that special rules apply for the interest deduction of so-called holding companies.

Substance requirements for Dutch Group Financing and Licensing companies

As from 1 January 2014, qualifying Group Financing and Licensing Companies established in the Netherlands mustcomply to certain specific substance requirements in order to avoid the automatic exchange of information withother states. This new legislation aims to avoid the improper use of Dutch Financing and Licensing Companies fortreaty shopping by offering the involved Treaty Partners/EU Partners full transparency about Dutch GroupFinancing and/or Licensing Companies which have no or only little substance in the Netherlands. The new ruleshave direct effect and are applicable to all existing and new companies in the Netherlands. There is no grandfatherrule. The substance requirements can be summarized as follows:

1. At least half of the total number of statutory board members of the company with decision-makingauthority resides or is actually established in the Netherlands.

2. The board members residing or established in the Netherlands have sufficient professional capabilities toadequately perform their tasks. The responsibilities of the board include, as a minimum, making decisions -on the basis of the legal entity's own responsibility and within the scope of usual group business - regardingtransactions to be closed by the legal entity and an adequate processing of transactions concluded.

3. The company has qualified personnel at its disposal for an adequate implementation and registration of thetransactions to be closed by the company;

4. The (important) executive decisions are taken in the Netherlands;5. The principal bank account of the company is kept the Netherlands;


6. The books of the company are kept in the Netherlands;7. The business address of the company is in the Netherlands;8. The company must comply with all its tax obligations;9. The company is a resident of the Netherlands. To the best of the company's knowledge, the company is not

considered a fiscal resident by another state;10. The company runs real risks with respect to its financing, licensing or leasing activities.11. The company has at minimum an appropriate equity that corresponds to its functions performed.

The conditions 1 to 10 relate to the operational substance. The conditions 10 and 11 constitute economicalsubstance requirements.

Some of these (operational and economical) substance requirements have been clarified in published (ruling)policy statements. For example the ruling policy explicitly includes the possibility that the company can useemployees of a third party for proper implementation and registration of the transactions entered into by thecompany. Moreover, the main bank account should not necessarily be held at a Dutch bank, but the companyshould have full authority over its bank accounts. It is assumed that these clarifications are still valid.

From an economical perspective (conditions 10 and 11), a company must run real business risks in relation to itsfinancing/licensing activities. In general the company must run more than pure operational risks and it must havesufficient equity to absorb these risks in case they materialize. For financing companies, guidelines are given inthe ruling policy (Advance Pricing Agreement or APA) and the Dutch Tax Act. Relevant risks explicitly mentioned inthe APA ruling policy are the credit risk (bad debt risk and currency risk) and market risk. At least one of theserisks must be borne by the company. This requirement typically disqualifies the fully matching back-to-back loanagreements, whereby a company runs (virtually) no business risks.

With regard to the level of risk required a safe haven is provided, in fact a minimum requirement for the equity atrisk. The equity requirement is supposed to be met, if the company has a (realistic) equity at risk of at least 1% ofthe amount of outstanding receivables or, if this is lower, €2,000,000. For licensing activities also a minimumequity requirement applies which can be used as a safe haven.

The exchange of information will only occur if the Dutch company indeed benefits from reduced foreignwithholding tax rates on the basis of applicable Dutch tax treaties or the EU Royalty and Interest Directive, orforeign domestic legislation based thereon.

This means that the automatic exchange of information will not occur if typically

a foreign state does not levy a withholding tax, or ifthe Dutch company does not claim such benefits.

The latter could typically occur if a Dutch finance/licensing company does not incur sufficient risk with itsfinancing/licensing activity (minimum equity requirement) and for this reason alone it does according to the Dutchtax laws not qualify for foreign treaty/ EU benefits.

Innovation Box

As of 1 January 2010, companies can benefit from an effective tax rate of only 5% for income from intangibleassets created by the Dutch taxpayer.

It is notr required that the intangible asset is patented. Also intangible assets that have been created by thetaxpayer and for which the R&D tax credit was received may qualify for the innovation box. In practice this meansthat technological innovations qualify for the innovation box. Intangible assets such as trade names andtrademarks do not qualify. The lower tax rate of 5% is claimed in the corporate income tax return filed by thetaxpayer. The low tax rate is actually an exemption of 80% of the profits that can be allocated to the innovation box.By applying the general Dutch corporate income tax rate of 25% this gives an effective rate of approximately 5% .


Participation ExemptionDividends received by a resident company from a qualifying shareholding are exempt from corporate income tax.This exemption (the participation exemption) is one of the most important provisions of Dutch corporate incometax legislation. Furthermore, any capital gains derived from the disposal of such a qualifying shareholding are alsoexempt from corporate income tax. This tax exemption is based on the principle that dividends paid out of profitsthat have already been subject to corporate income tax at the level of a subsidiary should not be taxed again in thehands of the recipient company. A shareholder may take into account a loss, when the company in which aqualifying participation is held is liquidated ("liquidation loss" rules) and meets certain conditions. In the years 2007and 2010 various changes have been made with respect to the participation exemption regime. As of 1 January2010 the following rules are applicable.

Conditions

Shareholdings must satisfy the following conditions in order to qualify for the participation exemption:

1. Ownership1. The participating company must own at least 5% of the issued share capital of the subsidiary, or2. The participating company must own at least 5% of the participations which are in circulation in a

fund for joint account, resident of the Netherlands, or3. The participating company must be a member of a cooperation or society on cooperative basis.

If the subsidiary is established in an EU Member State and the tax treaty the Netherlands concluded withthat Member State provides for a reduction of dividend withholding tax on the basis of voting rights, theparticipation exemption also applies if the shareholder holds 5% or more of the voting rights in thesubsidiary.

An addition to condition 1 is the following: if a company holds less than 5% in a subsidiary, but a relatedcompany has a qualifying participation, the participation exemption would apply nevertheless.

2. The shares in the subsidiary are not held as a portfolio investment.

The participation may not be held as a portfolio investment. The motive of the taxpayer becomes a relevant,although arbitrary, factor. However, the law offers two escapes. If a subsidiary qualifies as a portfolioinvestment, the participation exemption still applies if either an asset test or a subject-to-tax test is met.

Motive test

As of 1 January 2010 the participation exemption is not applicable if the shares in a subsidiary are held as portfolioinvestment. The decisive criteria for the qualification as portfolio investment are the intentions of the shareholder(motive test).

In case of mixed motives of the shareholder, i.e. a subsidiary has portfolio investment activities but also normalbusiness activities, the activities are predominantly decisive whether the subsidiary is a portfolio investmentcompany or not. In certain situations the subsidiary is not considered a portfolio investment company, for instanceif the subsidiary is engaged in the same business activities as the shareholder or if the shareholder is activelyinvolved with the management of the subsidiary.

Asset test

The assets of the participation should not consist for more than 50% of free passive portfolio investments (e.g.investments which do not have a business function). Participations of less than 5% are considered to be portfolioinvestments. For the asset test, the free passive portfolio investments are not taken into account if theseinvestments belong to a company whose assets generally at least for 70% or more consists of other assets thanfree passive portfolio investments. In that case the company holds participations, these participations are deemedto exist. In the Dutch Corporate Income Tax Act, the free passive portfolio investments have been defined in moredetail.

Subject-to-tax test

The participation exemption is always applicable if the subsidiary is taxed at a realistic corporate income tax rate. Arealistic corporate income tax rate is defined as a regular statutory tax rate of at least 10% unless the taxable basediffers significantly from the tax base according to Dutch standards, which could for instance be the case when aspecial tax regime applies to the subsidiary.

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If the participation exemption does not apply because the subsidiary is regarded as a low taxed portfolioinvestment, the Dutch corporate taxpayer is granted a fixed credit of 5% for the underlying corporate income taxborne by the subsidiary. Where it concerns an EU subsidiary, the actual underlying corporate income tax may becredited.

The participation exemption also applies to profit participating loans, being a loan with certain equity features, ifand insofar the Dutch taxpayer or a party related to the taxpayer has a qualifying participation in the debtor.Interest received is then tax exempt at the level of the Dutch taxpayer, regardless of whether the foreign debtoris allowed to deduct the interest. According to Dutch case law (ruled by the Dutch Supreme Court) a profitparticipating loan (for Dutch tax purposes thus to be treated as equity) has the following three characteristics:

1. the payment of the consideration for the loan is (for a significant part) profit dependent;2. the loan is subordinated to all ordinary creditors; and3. the loan does not have a fixed term, but is only repayable in the event of bankruptcy, moratorium on

payments or liquidation or the loan has a term of more than 50 years.

Deductions of costs

Under the Dutch participation exemption rules, a Dutch (intermediate) holding company is allowed to deduct allcosts and expenses (not only general and administrative expenses but also interest expenses related toacquisition financing) incurred in connection with its subsidiaries. However, expenses incurred which relate to thepurchase or sale of a subsidiary are no longer deductible.

Currency exchange losses and participation exemption

Although foreign exchange losses on qualifying shareholdings are according to the law not tax-deductible (whereasforeign exchange gains would be exempt), there is an argument based on EU law that these should be deductible.The Dutch government has introduced a regulation under which taxpayers who successfully challenge thenondeductibility of such losses cannot claim the participation exemption on foreign exchange gains on qualifyingparticipations.

Interest deduction denial rules on excessive debt f inancing

As of 1 January 2013 (or later, if the book year deviates from the calendar year), a new rule has become applicable,which aims to deny (part) of the interest expenses and other financing expenses for holding companies for taxpurposes. The rule also limits third party debt financing (such as bank debt).

According to the new legislation, excessive participation financing expenses are not tax deductible if and to theextent the annual amount of these expenses exceeds € 750,000. Participation financing expenses of € 750,000 orlower fall outside the scope of the new legislation; the amount of € 750,000 can be considered as a safe-harbourrule.

In case the annual amount of participation financing expenses exceeds € 750,000; it should be assessed how tocalculate the amount of non-deductible participation financing expenses. For this purposes, a mathematicalapproach applies. In order to determine the excessive amount of participation financing expenses, the averageamount of the accumulated fiscal acquisition price of the subsidiaries must be compared with the average amountof fiscal equity. The historical or factual relationship between subsidiaries and loans is in essence not relevant(albeit the exception for loans linked to investments which can qualify as a true expansion of the group).

In case the average amount of the accumulated acquisition price of the participations exceeds the average amountof equity of the taxpayer, the excess amount is qualified as "excessive participation debt". The amount non-deductible participation financing expenses is then to be calculated as the pro-rata share (excessive participationdebt / total debt year-average) of the accumulated participation financing expenses.

It is important to note that various exceptions and limitations on these rules may apply.

Loss utilization

Under the loss compensation rules, losses incurred by a pure holding company or group finance company can onlybe offset against holding and finance income in preceding and following years if, in short, the nature and size of theactivities of the company in that particular year is comparable to the nature and size of the activities in the yearfrom which the tax losses originate. In essence this rule prohibits that a pure holding company starts up newactivities as a result of which it loses its status of pure holding for the reason of compensating its losses fromholding activities with profits generated with other activities. Losses incurred however after the holding companydid lose its status as pure holding company can be compensated with future profits.


A holding company is defined as a company whose activities during the year or nearly the whole year mainly consistof holding participations and financing affiliated companies. A company of which at least 25 employees, calculatedon a full time basis, are not involved in holding or group financing activities does not fall within the scope of thisnew legislation.

Deduction in case of liquidation ("liquidation loss" rules)

Liquidation losses resulting after completion of the legal liquidation of a subsidiary qualifying under theparticipation exemption can, under certain conditions, be deducted from Dutch taxable income. The liquidationloss is deductible in the year of which the assets and the debt of the subsidiary have been liquidated and settled.

In general, the loss is calculated as the sum of the purchase price and the capital contributions paid, less possibleliquidation proceeds from the subsidiary. Deduction of a liquidation loss is subject to certain limitations includingthe following:

The deductibility of losses on the liquidation of an intermediate holding company is restricted.Losses are not deductible if the business activities of the subsidiary being liquidated are continued in full orin part within the group.Losses are generally not deductible if losses of the liquidated company may be offset against profits of agroup company or other party continuing the business.Any earnings received from the participating interest during a certain time period are deducted from theliquidation loss.The parent company claiming the liquidation loss is required to produce convincing evidence that the losswas incurred.


Dividends: The Parent/Subsidiary DirectiveBased on the EU Parent/Subsidiary Directive, a full exemption on dividend withholding tax may apply in case of aprofit distribution to qualifying EU parent companies. However, in order to qualify for this exemption twoconditions have to be met which are incorporated in the Dutch Dividend Tax Act:

1. The beneficiary to the dividends is a corporate body that is according to the tax legislation of that other EUMember State or an EEA Country (Norway, Iceland and Liechtenstein) a resident of that EU Member Stateor EEA Country; and

2. The beneficiary to the dividends owns at the time of dividend distribution at least 5% of the shares of theDutch subsidiary.

The exemption of Dutch dividend withholding tax at source does however not apply if:

The beneficiary to the dividends according to a tax treaty concluded with a third State is considered to haveits residency outside the EU or EEA;The beneficiary has a function similar to that of an investment company as defined in the Dutch CorporateIncome Tax Act;The beneficiary is not entitled to an exemption based upon an anti-abuse clause as incorporated in a taxtreaty concluded by the Netherlands and the State of residency;The beneficiary is not considered the ultimate beneficial owner of the dividends.

The term "beneficial owner" has not been defined in Dutch tax law. However, the Netherlands introduced anti-dividend stripping rules. In short, under the anti-dividend stripping rules, no reduction of Dutch dividendwithholding tax is provided in case the shares in a Dutch company are transferred to an entity that is entitled to areduction of Dutch dividend withholding tax, whilst i) the initial shareholder was not entitled to such reduction andii) the initial shareholder remains the ultimate beneficial owner of the dividends. The Dutch anti-dividend strippingrules thus apply in situation where the "legal recipient" of the dividend is entitled to a more beneficial entitlementthan the person considered being the ultimate beneficial owner.

Moreover, tax treaties concluded by the Netherlands generally provide that:

Withholding tax on dividends distributed to a Dutch company holding at least 25% of the shares in thedistributing company is reduced or even eliminated.Dutch dividend withholding tax on dividends distributed by the Dutch company to its foreign parent(domestic rate: 15% ) is generally reduced to 5% or 0% .

Certain conditions that a company must meet to qualify for the participation exemption have been describedabove. A specific problem in this area is determining whether or not the participation constitutes a portfolioinvestment. To avoid disputes of a factual nature, under certain conditions, a ruling can be obtained from the taxauthorities establishing that the participation is not such an investment.

Page 12 of 3 9Divide nds: The Pare nt/Subsidiary Dire ctive

Object ExemptionUnder the rules up to 2011, Dutch companies with a foreign permanent establishment (branch) could offset theirforeign losses against their Dutch profits. Foreign profits were in principle taxable, but subsequently exemptedfrom the Dutch taxable base. This system had the advantage that foreign losses could be deducted immediately.As a result, this system was more beneficial than the application of the participation exemption, because under theparticipation exemption the losses of a participation were exempted as well. Therefore, there was a mismatch rethe treatment of losses of a foreign permanent establishment and a foreign participation.

As of 1 January 2012, the object exemption is introduced. The idea behind the object exemption is that apermanent establishment and a participation should be treated equally.

The object exemption is applicable for an active foreign permanent establishment (branch). The object exemptionmeans that the profit and losses are exempted from the Dutch taxable base. This implies that foreign profits in theNetherlands will no longer be subject to tax and that losses are not deductible anymore.

The regulation of the object exemption consists of three elements:

1. An object exemption for active foreign permanent establishments.2. A special regime for so-called "passive foreign portfolio investment enterprises".3. A special regime for the deduction of final losses ("liquidation losses").

Object exemption

As indicated above, the object exemption will apply for active foreign permanent establishments. In order to applyfor the object exemption, it does not matter whether the active foreign permanent establishment is subject to taxabroad.

"Passive foreign portfolio investment enterprises"

A special regime applies for so-called "passive foreign portfolio investment enterprises". In that case the profits ofthe foreign permanent establishment will be included in the Dutch taxable base, while - under certain conditions -a credit will be granted for the underlying tax. According to the law, there is a "passive foreign portfolio investmententerprises" in case the following two conditions are (cumulatively) met:

1. The activities of the foreign business, together with the activities of corporate bodies in which the taxpayerholds an interest of 5% or more and which interest can be allocated to the foreign business, consist formore than 50% of passive portfolio investments (PS. This also includes the (in)direct financing of thetaxpayer or a related company and the usage of assets by the taxpayer or related companies), and

2. The profits of the foreign business are not subject to a reasonable tax according to Dutch tax standards.

In addition, certain activities cannot be regarded as "passive". The following activities are not regarded as"passive", in case these activities are not possessed by a company which qualifies as an (exempt) investmentcompany:

Active financing activities;Activities regarding immovable property

In case the foreign business is either involved in active financing activities or involved in activities regardingimmovable property, the object exemption should in principle apply. The object exemption cannot be applied incase the activities regarding the immovable property are possessed by a company which qualifies as an (exempt)investment company.

As stated above, in case of "passive foreign portfolio investment enterprises" the profits are included in the Dutchtaxable base, while - under certain conditions - a credit can be granted. In principle a credit of 5% will be granted.Upon request, the actual tax due can be credited.

In case the foreign business is not subject to tax, no credit will be granted.

Final losses

The object exemption will not apply in case the losses incurred through a permanent establishment are final. Thisis the case if the foreign activities have been ceased indefinitely or if the foreign activities have been sold to anunrelated party. With respect to the latter and additional condition applies, e.g. the incurred losses should not betransferred to the acquiring third party which would then be able to offset these losses against future profits.

Page 13 of 3 9Obje ct Exe m ption

Furthermore, specific conditions apply re the final losses.

Furthermore, specific transitional rules are introduced with respect to losses available at the moment of this newlegislation.

Page 14 of 3 9Obje ct Exe m ption

Calculation of Corporate Income TaxCorporate income tax is imposed on taxable profits. The annual taxable profit for corporate income tax purposes isdetermined consistently in accordance with the legal concept of "sound business practice" that may differ fromgenerally accepted accounting principles: for example, trading income and capital gains are not distinguished andboth are included in the taxable profits. The concept of sound business practice is not defined in law and ispredominantly developed in case law. It is based on general accepted accounting principles with certainadjustments for tax purposes.

As indicated, the concept of sound business practice has a huge history of case law deciding which tax accountingprinciple is acceptable and which is not (however acceptable for business economic purposes). Sound businesspractice is based on the following principles:

1. realization principle; income is in general only subject to tax when it is realized;2. matching principle; expenses must be allocated as much as possible to the year in which the corresponding

income is realized;3. reality principle; a substance over from approach is adopted above a formal-legal approach;4. prudence principle; the entrepreneur does not have to take into account unrealized gains/income and can

take into account expenses/losses at the earliest but reasonable moment.

The tax year is the same as the accounting year; but the tax year does not need to coincide with the calendar year.

If the annual accounts (financial statements) do not appear to be reliable, the inspector may make a reasonableestimate of the taxable profit.

Tax year

The standard tax year is the calendar year, but a company may have a different year like for instance its parent'sfiscal year as its tax year. Please note however that the tax year used by a Dutch parent and a Dutch subsidiarydoes not necessarily have to coincide (except for some special tax provisions to be invoked, for example: the taxyear used by the Dutch parent and the Dutch subsidiary need to coincide if these entities want to form a fiscalunity).

Capital gains and losses

There are in principle no special tax rules for capital gains or losses. Capital gains are included in the taxable profitand are subject to normal corporate income tax rates and capital losses are fully deductible. The basis forcomputing a capital gain or loss is the difference between the book value of the asset (its original cost price lessdepreciation), and its disposal proceeds.

The general rule of sound business practice is that capital gains are not taxed until they are realized, but capitallosses may be deducted as soon as they can reasonably be expected.

In addition to the above, the following is noted. Short-term receivables/claims in foreign currencies (e.g.receivables in foreign currencies which are directly available on demand) should- in accordance with soundbusiness principles - be valued at the current value. This is based on a Court decision. This means that gains andlosses should be taken into account immediately. For long-term receivables in foreign currencies, the rules ofsound business principles do not oppose against a valuation of such a receivable/claim at the exchange rate at thebalance sheet date.

Based on the prudence principle, it is defendable that such a long-term receivable in foreign currencies is valuedbased at the historic value or the lower current value. If there is a genuine intention to replace an asset withanother (economically comparable) asset, any gain arising on its sale or disposal may be placed tax-free in a re-investment reserve. The capital gain or loss on the disposal of a substantial shareholding however is exempt underthe participation exemption.

Provisions

For tax purposes a provision can only be formed if the following conditions, which are based on Dutch case law aremet:

1. Future expenditures originate from facts and circumstances occurred before balance date (thus relate totransaction in that specific book year);

2. It can reasonably be expected that the future expenditures occur;3. The expenditures have to be allocated to that specific book year (may not relate to expenditures in

Page 15 of 3 9Calculation of Corporate Incom e Tax

connection with future transactions).

Exchange f luctuations

It is possible for a company to compute its taxable profit in the functional currency (other than the EURO) of themultinational group it is a part of. In particular for Dutch subsidiaries of foreign multinationals, this may imply aconsiderable reduction of their administrative burden. Tax reporting in a foreign currency will be subject to theapproval by the tax inspector in advance. One of the major advantages of being able to compute taxable profit in aforeign currency is that Dutch resident companies that derive income from a foreign branch may be able to avoidtaxation on so-called "conversion results."

Currency exchange results on loans used to finance the acquisition of foreign subsidiaries are not covered by theparticipation exemption. As a consequence, both currency exchange gains and related losses on funding loans aretaxable or deductible (be it that exchange gains will normally be taxable upon redemption of the loan). It is possibleto hedge currency exchange results on such funding loans. The results stemming from the hedging agreementrelating to the value of the foreign subsidiary will be covered by the participation exemption if a request theretohas been accepted by the Dutch tax authorities in advance.

In addition, it is noted that in case the company has a loan payable in another currency and this loan falls within oneof the interest deduction denial rules, that also a currency exchange result may under certain circumstances alsofall within the same "limitation rules", implying that (a part) of the exchange losses may not be deductible. Thisshould be assessed on a case-by-case basis.

Valuation of (in) tangibles

Generally, all assets owned or used by a corporation for the purpose of its trade are depreciable, whether tangibleor intangible, new or used, if their values necessarily diminish with time. Depreciation is calculated on cost priceless residual value. The basis for depreciable costs is the purchase price or production cost plus allocable costs.This basis may not be regularly adjusted for depreciation of the currency. The depreciable basis must bedecreased, however, by amounts received as capital grants (cash grants) from the government as anencouragement for capital investment

Depreciation allowances may be taken into account during years in which an asset is used in the business. The timeat which the asset is ordered or the purchase price is paid is therefore not decisive. However, any reduction incommercial value between the time at which an asset is ordered and the time it is put into use may be deductedimmediately. Permissible depreciation methods according to sound business practice include the straight line anddeclining balance method and methods based on the intensity of use. Depreciation is compulsory; no deferral ispermitted. Depreciation rates are generally based on the expected economic life of an asset. For tax purposes, themaximum depreciation term for tangibles is 20% per year.

Real Estate

As per 1 January 2007, changes in depreciation rates have been introduced, specifically related to real estateproperty, goodwill and certain business assets. The depreciation for real estate property is now restricted to theextent that the book value for corporate income tax purposes should not be less than the fair market value of theproperty. The fair market value is derived from the so called "WOZ value", the periodically assessed value of realestate by the municipality in which the real estate property is located (as from 2008 this value will be assessedannually; for the year 2015 the WOZ-value of 2014 is decisive). An exception to this rule applies to real estate thatis in use by the taxpayer itself. In that case the book value of the real estate property cannot be less than 50% ofthe real estate property's fair market value.

Other business assets

As of 1 January 2007, new depreciation rules also apply for other fixed assets. For business assets like motorvehicles, fittings and furniture and computers, the minimal depreciation term is set at 5 years for tax purposeswhich should more or less be in accordance with the actual live cycle of the assets used. It is still possible to re-valuate an asset to the lower commercial value.

Goodwill

The depreciation term for corporate income tax purposes of intangible assets is set at 20% of the historic costprice (see above). However, the depreciation term for acquired goodwill , patents and concessions may bedepreciated with a maximum of 10% per year. These intangibles could however still be depreciated within 10 years,in case the market value of the goodwill is less than the book value; IFRS impairment losses can then be thestarting point. Self-created goodwill and patents are not considered to be capital assets and therefore are not


amortizable. When a participation is acquired, goodwill is not separately valued according to sound businesspractice. The goodwill is taken into account in the acquisition price of the participation (e.g. no depreciation for taxpurposes).

Costs for research and development

According to sound business practice research and development costs have to be activated in case the researchand development efforts result in a new asset. However, according to Dutch tax law, it is possible that theproduction costs of intangibles can be deducted at once in the year of production.

Participations

According to Dutch corporate income tax purposes an interest in the issued share capital of at least 5% of asubsidiary qualifies as a participation (when there is further complied with certain conditions). In general theparticipation is valued at its cost (or acquisition) price. This price can contain payments for goodwill, earn-outarrangements, compensation payments for directors/commissioners/employees etc. These payments will betaken into account as acquisition / cost price for the participation for tax purposes. These costs cannot be split up.

Valuation of inventories

Any method may be used as long as it is in accordance with "sound business practice" and is consistently applied.The usual method of valuing inventories is the lower of actual (historical) cost or net realizable value (marketvalue). If the inventory consists of homogeneous goods, a FIFO, LIFO or base stock system may often be applied indetermining the costs of the inventory.

Valuation work in progress

Work in progress must be valued on the balance sheet date on that part of the agreed remuneration for thecomplete work than can be ascribed to complete the work in progress. Postponement of profit taking until thework is fully delivered is thus no longer possible. According to the prudence principle losses can be taken intoaccount when they occur.


Corporate Entities and TaxationCorporate entities in the Netherlands can be subdivided into the following three main categories:

Public limited liability companies (NV); a legal entity, with its capital divided into freely transferable sharesand with an annual audit requirement.Private limited liability companies (BV); a legal entity, with its capital divided into shares of which thetransferability may be restricted by law (shares have to be registered).Partnerships, which are either general (VOF) or limited partnerships (CV).

Both NV's and BV's are subject to Dutch corporate income tax on their entire worldwide income. However, doubletaxation of foreign-source income will normally be avoided by the participation exemption, object exemption, taxtreaties or the Decree for Avoidance of Double Taxation. This latter also applies to other entities listed in theCorporate Income Tax Act, such as:

cooperative societies and other associations based on the cooperative principle;mutual insurance companies and other associations which act as insurance or credit organizations on theprinciple of mutuality;associations with or without legal personality and foundations to the extent that they conduct a business;funds for joint account; anda number of government-owned companies.

A general partnership is usually not a taxable entity in the Netherlands and it is usually not required to file acorporate income tax return. Corporate and individual partners are taxed on their proportionate shares of thepartnership income. A limited partnership is taxed as a corporation if, under the provisions of the partnershipagreement, admission or substitution of limited partners, except through inheritance or legacy, does not requirethe consent of all partners, both general and limited (so-called "open" partnership). An open partnership ishowever only taxed for the income allocable to its limited partners. The income allocable to the general partners isalways taxed at the level of the partners, not at the level of the partnership.

For personal income tax purposes, if a partnership that is not taxed as a corporation is engaged in business, allpartners are deemed to receive business profits. Limited partners in a limited partnership, however, are deemedto receive investment income if they are entitled only to a share in the partnership's ordinary annual profits. Thisdistinction is most significant if the limited partnership incurs losses, because only an individual deemed to receivebusiness income may deduct the individual's share of those losses (limited to the amount contributed to thepartnership). Limited partners of a limited partnership taxable as a corporation are treated like shareholders in acorporation i.e. they are deemed to receive dividend income.

The method of taxing a joint venture will depend on its legal status, which can vary from that of a partnershipformed by two or more enterprises to a jointly owned corporation. Its tax treatment varies accordingly.

On 12 June 2012 the Dutch Senate approved the legislation for the Simplification and Relaxation of Company Law(in Dutch: "Wet vereenvoudiging en flexibilisering bv-recht"). This new legislation entered into force on 1 October2012.

The new legislation aims to simplifying the procedure of the incorporation of a BV. In short, the most importantchanges are (not an exhaustive list):

The minimum capital requirement for BV's of € 18,000 is abolished;The bank statement / audit valuation statement for BV's are vanished;BV's will be allowed to denominate their share capital in another currency than the euro;A large part of the capital protection provisions will laps;Shares without voting rights or profit may be issued;The shareholders have a greater capacity to give instructions to the board (in that case, shareholders maygive concrete instructions to the board);The board of the BV must also grant approval for dividend payments, share buy backs, capital reductions;The mandatory share transfer restrictions are abolished (optionally: it is possible to include share transferrestrictions in the articles of association/by-laws).

Page 18 of 3 9Corporate Entitie s and Taxation

The Dutch Permanent EstablishmentThe principal Dutch income tax acts do not contain definitions of the terms "Dutch permanent establishment" or"Dutch permanent representative."

As of 1 January 2012, an object exemption is applicable. For this purpose, the term "permanent establishment" isdefined. However, this definition is (only) valid for foreign permanent establishments.

Dutch permanent establishments

Some guidance can be found, however, in the provisions of the various double taxation agreements concluded bythe Netherlands and in Dutch unilateral relief provisions. The Unilateral Decree for the Avoidance of Taxation of2001, which sets out the Dutch unilateral relief provisions, defines "permanent establishment" as a fixed place ofbusiness of an enterprise, through which the business activities of that enterprise are wholly or partly carried on.This includes the seat of the management of the enterprise, agricultural land, and construction sites in existencefor more than twelve months. Moreover, entrepreneurial activities carried out for at least 30 successive days aredeemed to constitute a permanent establishment if these activities are performed in, on, or above the North SeaExploitation Area. This area comprises the Dutch part of the continental shelf as well as that part of the shelf forwhich the Netherlands has the rights on exploration and exploitation under international law. Double taxationagreements usually provide that an office confined wholly to research, advertising or purchasing (or otheractivities of a supportive or auxiliary nature) is not treated as a permanent establishment. Likewise, an agent(either non-authorized, or independent and acting in the normal course of his business) whose activity is limited toconveying orders or delivering goods from a stock maintained in the country does usually not constitute apermanent representative in the Netherlands.

A Dutch permanent establishment has in general no treaty protection with regard to income received fromsources in third countries (not being the country where the head office is situated). However, a Dutch permanentestablishment may be allowed a tax credit for withholding taxes incurred in third countries as if the permanentestablishment was a Dutch tax resident. It should be added, that most tax treaties concluded by the Netherlandsprovide that a permanent establishment for tax purposes shall not be deemed to exist (and thus no liability forDutch income tax even on a cost plus basis), if:

Facilities are used for the sole purpose of warehousing, display or delivery of goods or merchandise.Stock of goods or merchandise is maintained for the sole purpose of ware housing, display or shipment,processing or conversion.A fixed place of business is maintained for the sole purpose of purchasing goods, collecting information,advertising, providing information, or similar activities for the benefit of the foreign head office, which areof a preparatory or supporting nature.

Determination of permanent establishment income

The taxable income of a permanent establishment is determined in the same way as that of a resident company.Adjustments are made, however, for profit allocations between the permanent establishment and its head officewhere, for example, transactions have not been at arm's length. The Dutch tax authorities do not normally permitinterest charges by a foreign head office to a permanent establishment situated in the Netherlands, or similarroyalty charges, unless it can be proved that these charges originate from transactions carried out by the headoffice specifically for the benefit of the permanent establishment.

A deduction from taxable profits is permitted for head office expenses that can be properly allocated to theactivities of the permanent establishment. There is no withholding tax on profit remittances by a permanentestablishment to its head office.

Other operations

Income of non-resident companies resulting from certain specified Dutch sources is taxed at the normal Dutchcorporate income tax rate. The most important of these sources are:

Profits arising from a business conducted through a permanent establishment or permanentrepresentative in the Netherlands.Dividends and derived interest, and capital gains realized on the sale of shares in any Dutch residentcompany in which the recipient holds a substantial interest (see below), unless his shareholding can beregarded as a business asset.Net income arising from Dutch real estate.

Page 19 of 3 9The Dutch Pe rm ane nt Establishm e nt

Dutch tax rules may be overruled by a double taxation agreement between the Netherlands and the country, inwhich the company is resident, so the relevant agreement should always be reviewed.

According to Dutch tax law, non-resident entities that perform activities as director or commissioner of a Dutchcompany are taxable in the Netherlands. As of 1 January 2013 this rule has been amended in such a way that thecurrent rule regarding the taxation of the remuneration for statutory activities of the directors or commissionersis extended and also includes the remuneration for the actual management activities or management services. Forbook years which are not equal to the calendar year, the new rule will be applicable after 1 January 2013.Furthermore, it should be assessed whether the Netherlands is allowed to levy taxes under the applicable taxtreaty. In case there is no tax treaty applicable, the Netherlands will levy tax.

Changes in the rules for foreign substantial shareholders:

Under certain conditions foreign entities (e.g. non-Dutch resident entities) that hold a substantial interest (i.e. aninterest of at least 5% ) in a Dutch resident company can be subject to Dutch corporate income tax for the incomederived from such a substantial interest. This is the case if the interest cannot be allocated to the equity of anactive enterprise of the foreign shareholder. This rule also applies to members of a cooperative.

As of 1 January 2012 the levy of this tax is also subject to the condition that the shares in the Dutch company arenot held by the foreign shareholder in order to avoid the levy of Dutch personal income tax and/or Dutch dividendwithholding tax.

Page 20 of 3 9The Dutch Pe rm ane nt Establishm e nt

Allowable Deductions (1): General RulesAllowable deductions include all expenses directly connected with the conduct of the business. Insofar asexpenses exceed at arm's length amounts due to the intervention of shareholders and are for the benefit ofshareholders or parties related to them, the excesses are considered to be non-deductible distributions of profits.This rule applies to all expenses, thus including interest, rent, royalties, directors' remuneration and profit sharingbonuses.

For corporate income tax purposes, in principle, all costs are deductible, except costs of pleasure boats used forrepresentative ends, certain fines imposed, and certain costs related to criminal activities. Furthermore, Dutchdividend tax and Dutch corporate income tax are not deductible. Foreign taxes on profits are in general also notdeductible. However, this may be different if the relevant foreign income is not subject to relief under unilateralDutch provisions or double taxation treaties. Foreign withholding tax on dividends, interest and royalties will besettled based on the system of avoidance of double taxation (credit method). Under circumstances related toforeign withholding tax on dividends, interest and royalties may opt to deduct the costs instead. Business taxesand sales taxes are in general deductible (e.g. wage taxes, VAT).

Mixed costs (costs that have both a business and a private character) are only deductible within certain limits.Such expenses are fully deductible if the company adds to its taxable income an amount equal to 0.4% of the totaltaxable wages paid to all employees, with a minimum of EUR 4,300. Upon request, this amount is not added totaxable income, in which situation the deduction of the total of such expenses is limited to 73.5% thereof. Thelimited deductible expenses relate to food, beverage, tobacco and other such expenses as well as expenses forconferences, seminars, symposiums, excursions and educational tours.

Page 21 of 3 9Allowable De ductions ( 1) : Ge ne ral Rule s

Allowable Deductions (2): DepreciationGenerally, all assets owned or used by a corporation for the purpose of its business are depreciable, whethertangible or intangible, new or used, if their values necessarily diminish with time. Depreciation is calculated on costprice less residual value. The basis for depreciable costs is the purchase price or production cost plus allocablecosts. This basis may not be regularly adjusted for depreciation of the currency. The depreciable basis must bedecreased, however, by amounts received as capital grants (cash grants) from the government as anencouragement for capital investment. Depreciation allowances may be taken during years in which an asset isused in the business. The time at which the asset is ordered or the purchase price is paid is therefore not decisive.However, any reduction in commercial value between the time at which an asset is ordered and the time it is putinto use may be deducted immediately. Permissible depreciation methods include the straight line and decliningbalance method and methods based on the intensity of use. Depreciation is compulsory; no deferral is permitted.Depreciation rates are generally based on the expected economic life of an asset.

As per 1 January 2007, changes in depreciation rates have been introduced, specifically related to real estateproperty, goodwill and certain business assets. The depreciation for real estate property is now restricted to theextent that the book value for corporate income tax purposes should not be less than the fair market value of theproperty. The fair market value is derived from the so called "WOZ value", the periodically assessed value of realestate by the municipality in which the real estate property is located (as from 2008 this value will be assessedannually). An exception to this rule applies to real estate that is in use by the taxpayer itself. In that case the bookvalue of the real estate property cannot be less than half of the real estate property's fair market value.

The depreciation term for acquired goodwill, patents and concessions has been extended to at least 10 years.These intangibles could however still be depreciated within 10 years, in case the market value of the goodwill isless than the book value. Self-created goodwill and patents are not considered to be capital assets and thereforeare not amortizable.

For business assets like motor vehicles, fittings and furniture and computers, the minimal depreciation term is setat 5 years which should more or less be in accordance with the actual live cycle of the assets used. It is stillpossible to revaluate an asset to the lower commercial value. A transitional regime governs the depreciation ofbusiness assets produced or acquired before 1 January 2007. Typical rates allowable for the more commonbusiness assets are detailed below:

percentage per year

Office buildings 2-3%

Industrial buildings 2-5%

Office furniture 20%

Office machines - small machines 20%

Office machines - otherwise up to 100%

Motor vehicles 20%

Machinery 10% (average)

Small tools 100%

For computer software special rules apply. Computer software especially developed for a company and only to beused by that company should qualify as an asset and thus can be depreciated on (normal depreciation percentageper year is 20% ). Standard software on the other hand does normally not constitute an asset, and can be fullydeducted at once.

Accelerated depreciation is possible regarding investments in certain equipment, which have been deemed an"environmental investment" by a Ministerial Act. In essence, this tax relief program enables companies todepreciate investments in energy and other environmentally friendly technologies at a faster rate than normal.

Page 22 of 3 9Allowable De ductions ( 2) : De pre ciation

Allowable Deductions (3): Tax Free ReserveThe creation or increase of the following provisions and reserves constitute deductible expenses. Such reservesare often referred to as being "provisionally tax-free" because they only postpone taxes rather than reduce them.

Reinvestment reserve

Gains arising on the sale or disposal of assets may be placed in a tax-free reserve as long as there is an intention toreplace the assets. For non-depreciable assets and assets with a depreciation term exceeding 10 years, conditionfor the use of the re-investment reserve is that it concerns economically comparable assets. This facility does not,however, apply for intangible fixed assets that are kept in the nature of portfolio investment. Thus, whilecontributions to such a reinvestment reserve are deductible, the reserve must be applied against the cost of thereplacing asset. The depreciable base of the replacing asset will be the purchase price minus the reserved amount.A lower deduction of depreciation in the future will offset the tax saved when the original contribution was madeto the reserve. Unless special circumstances exist, the asset must be replaced within three years after the yearthe reserve has been formed, or the reserve must be added back to taxable income.

Equalization reserve

A provision for future expenditure on the overhaul and repair of existing depreciable assets, such as buildings,ships and certain major items of machinery, may be established provided that the provision relates to specificcosts to be incurred and is not used for future investment or the purchase of new capital assets.

Page 23 of 3 9Allowable De ductions ( 3 ) : Tax Fre e Re se rve

Allowable Deductions (4): OtherBelow you will find a list of various deductions.

Formation expenses

Expenses incurred in establishing a business, such as registration fees, notary fees, consultancy fees, may bededucted in full in the year in which they are incurred. Alternatively, these costs can be fully covered by the profitsat once or these costs can be divided over several years.

If the costs are divided over several years, it should be noted that according to article 2:365 of the Dutch Civil Codethe set-up costs should be separately included under intangible assets.

Investment allowance

The investment allowance offers companies the possibility to deduct a percentage of the total amount ofinvestments made in a year, insofar the total amount of investments exceed an amount of EUR 2,500 and do notexceed an amount of EUR 309,693 (2015). The percentage varies (in brackets) from 28% for investments betweenEUR 2,500 and EUR 55,745, a fixed amount of EUR 15,609 for investments between EUR 55,745 and EUR 103,231and for investments between EUR 103,231 and EUR 309,693 an amount of EUR 15,609 reduced with 7.56% of thepart of the investment exceeding EUR 103,231. In general, investments not exceeding EUR 450, investments inland, passenger cars and private houses may not be taken into account. Investments however in highly fuel-efficient and electric cars are eligible for the allowance, irrespective of their intended use. For assets alienatedwithin five years of the beginning of the calendar year of investment with a transfer price of at least EUR 2,300, adisinvestments addition is due.

Energy investment allowance (EIA)

Certain investments, which have been deemed an "energy investment" by a Ministerial Act, enjoy a special energyinvestment allowance. These investments should be aimed towards economical use of energy and the generationof renewable energy. This energy allowance makes it possible for businesses to deduct 41.5% of the investment ofat least EUR 2,500 and with a maximum of EUR 118,000,000 from their taxable profits (2015). For assets alienatedwithin five years of the beginning of the calendar year of investment with a transfer price of at least EUR 2,300, adisinvestments addition is due. The energy investment allowance is only applicable if a “certificate energyinvestment” is obtained from Rijksdienst voor Ondernemend Nederland (Netherlands Enterprise agency; website:RVO.nl). A request thereto should be filed digitally at RVO.nl. The energy investment should be registered within acertain period of time (e.g. three months after the acquisition). It should be noted that it is not possible to opt forboth the application of the energy investment allowance (EIA) and the environmental investment allowance (MIA).

As stated above, companies should file a digital request. As per 2013, this procedure is simplified for certainpartnerships (in Dutch: "maatschap" en "vennootschap onder firma") in the sense that not every partner shouldfile a request separately. Partnerships may file one request for the investments concerned.

Environmental investments allowance (MIA)

Certain investments, which have been deemed an "environmental investment" by a Ministerial Act, enjoy a specialenvironmental allowance. This tax relief program gives a direct financial advantage to companies that invest inenvironmental friendly equipment. Depending on the classification of the equipment the company invests in(relates to the environmental impact of the equipment and how customary the equipment is), the allowanceamounts to respectively 36% , 27% or 13.50% of the investment costs. The investment threshold is EUR 2,500. Perinvestment no more than EUR 25,000,000 can be accounted for. Should for a specific investment be opted forapplication of the Energy Investment Allowance, companies are not allowed to apply the MIA as well. For assetsalienated within five years of the beginning of the calendar year of investment with a transfer price of at least EUR2,500 a disinvestments addition is due.

For the application of the MIA, companies should file a digital request with Rijksdienst voor OndernemendNederland (RVO.nl). As per 2013, this procedure is simplified for certain partnerships (in Dutch: "maatschap" en"vennootschap onder firma") in the sense that not every partner should file a request separately. Partnershipsmay file one request for the investments concerned.

Interest, rent and royalties

In principle, all interest payments on promissory notes and other debts of the company are considered to bebusiness expenses and are therefore, in principle, deductible. However, it should be noted that the deductibility of

Page 24 of 3 9Allowable De ductions ( 4) : Othe r

interest paid to affiliate parties, but as of 2013 also interest on bank debt, may be limited. Given that thelegislation contains very complex rules, including arm's length principles, preferably this deductibility should bechecked with local tax specialists. However, also in relation to intellectual property obtained from relatedcompanies, at arm's length rules apply. Rent, maintenance, heating and lighting and other expenses connectedwith the use of real estate (land and buildings) are in general deductible, as also are royalties on patents,trademarks, know-how and similar rights.

Directors' remuneration

Remuneration paid to members of the managing and supervisory boards is generally deductible. However, from acorporate income tax perspective, a supervisory board member/individual which also is the holder of a "substantialinterest" in the company and the remuneration paid exceeds EUR 1,815 per year, the deduction will be limited to50% of the remuneration paid, with a minimum deduction of EUR 1,815 and a maximum of EUR 9,076.

Individual Dutch resident directors holding a substantial interest in the company should be paid a minimum ofemployment income of EUR 43,000 per annum (as of 2014). If a lower amount is actually paid, the difference is forDutch tax purposes deemed to be paid as salary. This minimum of income to be taken into account can be reducedif, based on the individuals' education, nature of the activities and other relevant considerations, it is likely thatthird parties would have agreed upon a lower remuneration. On the other hand, if in comparable employmentrelations - without a substantial interest - a higher income is customary, the income will be set at 70% of thatcustomary income. The minimum employment income will be taken into account per company. However, in groupstructures it is possible that the minimum employment income is reported by one corporate entity. It shouldhowever be assessed whether the employment income granted, will be customary for the total employmentactivities performed on behalf of the group.

Furthermore, the minimum employment income will not be applicable if the income will not exceed EUR 5,000. Ingroup structures, this test will not be assessed with one company, but for the total activities the director hasperformed for the group. Therefore, the activities performed should also justify the amount actually paid to thedirector.

Taxes

Taxes such as municipal taxes, customs and excise duties and special levies are normally allowable deductions, butcorporate income tax is not. Foreign taxes on profits are in general also not deductible. However, this may bedifferent if the relevant foreign income is not subject to relief under unilateral Dutch provisions or double taxationtreaties. Foreign withholding tax on dividends, interest and royalties will be settled based on the system ofavoidance of double taxation (credit method). Under circumstances related to foreign withholding tax ondividends, interest and royalties may opt to deduct the costs instead.

Bad and doubtful debts

Bad debt write-offs are deductible, whether of a trade or financial nature. Provisions for doubtful debts are alsodeductible. They may be determined specifically or as a percentage of all outstanding debts. If a general (that is, apercentage) method is adopted, the percentage used must be based on the taxpayer's previous experience.

Pension contributions

Contributions made to a genuine pension scheme, whether administered by a pension fund or insurance company,or by the taxpayer himself, are deductible. The provision requires that the Dutch tax authorities must haveaccepted the scheme as a bona fide employee pension scheme. Also foreign pension schemes may qualify.Pensions paid to former employees and to managing and supervisory board members under contractualobligations are also deductible.

Option plans

For corporate income tax purposes the deduction of options granted to employees on own shares is abolished.This means that the issue of shares and the granting of profit-sharing certificates or (stock) options are no longerdeductible costs for Dutch corporate income tax purposes

Commissions

Commissions are deductible if the amounts and recipients are clearly specified and documented; in other cases itmay be difficult to prove this type of expenditure. A Dutch tax court has ruled that commissions are a deductibleexpense provided that they are not unusual nor in excess of amounts or percentages commonly paid in theparticular trade or industry.


Gifts

Contributions made in the normal course of business that can be considered as normal business expenses aredeductible without restriction. In principle gifts made to business acquaintances are fully deductible. Gifts made tocertain "registered" ideological, charitable, scientific and public interest serving institutions are deductible. Themaximum deduction is 50% of the company's profits, with a further restriction that the total deductible gifts maynot exceed an amount of EUR 100,000.

In order to stimulate cultural entrepreneurship, the aforementioned deduction of gifs to certain "registered"cultural institutions are multiplied by a factor of 1.5 (multiplier), or with at least an amount of EUR 2,500.


International Tax RatesIn recent years corporate income tax rate cuts in a lot of OECD countries have been introduced. In line with thistrend, the Dutch corporate income tax rate was lowered as well. Corporate income tax is levied at the followingrates (2015):

20% on the first EUR 200,00025% on taxable profits in excess of EUR 200,000

The Netherlands and its competitors:

Country Tax rate 2015 (trading income)

Ireland 12.50%

Finland 20.00%

United Kingdom 20.00% -21.00%

The Netherlands 20.00% -25.00%

Spain 20.00% -30.00%

Luxembourg(1) 21.00% -29.22%

Sweden 22.00%

Denmark 23.5%

Austria 25.00%

Norway 27.00%

Italy 27.50%

Germany(1) 22.825% -33.325%

Belgium(1) 33.00% -33.99%

France 33.33%

Source: OECD

(1): including surcharge

Note that a low rate does not necessarily mean a low tax burden. The tax rate must be applied to the tax base inorder to measure the effective tax burden. Furthermore, a cut in one tax often leads to an increase in another.(Please note that local taxes are relatively low in the Netherlands.)

Page 27 of 3 9Inte rnational Tax Rate s

Liquidations and ReorganizationFor corporate income tax purposes, the liquidation of a company requires a revaluation of all the company's assetsand liabilities at fair market value, as if the company would have sold its business. Income arising during the courseof a liquidation and dissolution is subject to corporate income tax at the normal rates, so that, capital gains arisingon the disposal of fixed assets are added to taxable income in the normal manner.

Liquidation distributions to shareholders are treated as follows:

The portion representing paid-in capital, including any portion that has been accepted for income taxpurposes as a share premium and capitalized profits, but excluding retained earnings, is tax-free.Any other payment is deemed to be a dividend and the liquidator is obliged to account for dividendwithholding tax (domestic rate:15% ). Withholding tax will not be due if the recipient is a resident companythat qualifies for the participation exemption. Furthermore, no dividend withholding tax will be due if therecipient is a qualifying EU shareholder (due to the application of the EU Parent/Subsidiary Directive). Byvirtue of applicable tax treaties, the withholding tax due may be reduced if the recipient resides in acountry the Netherlands concluded a tax treaty with.

Purchase of own shares

For corporate income tax purposes the purchase of owns shares by a company is treated as partial liquidation.When a corporation repurchases its own shares, any excess of purchase price over the relative paid-in capital andpremium is deemed to be a dividend. In some situations there is no dividend withholding tax due when acorporation purchases its own shares.

Acquisitions

The usual form of business expansion in the Netherlands is the acquisition of shares. This involves the exchange ofshares in the acquired company for shares or convertible bonds in the acquiring company, or partly or wholly forcash. The acquiring company, if resident, or otherwise through an intermediary Dutch holding company, will oftenapply for fiscal unity, which allows consolidated tax treatment of the company acquiring the shares and the targetcompany. The fiscal unity regime makes it possible to offset interest payments made on loans to finance theacquisition of the shares against operating profits of the company taken over.

With respect to acquisitions, it is noted that it should be assessed whether the acquisition will be financed withequity or with debt and in case the acquisition is financed with debt, it should be assessed whether the interest isdeductible for tax purposes. As can be derived from the above, Dutch tax law contains various interest deductiondenial rules which may be applicable, for instance:

Loans connected to "tainted" transactionsInterest deduction denial rules for excessive participation financing (NB. This rule applies as of 1 January2013; or later, if the book year deviates from the calendar year)Interest deduction denial rules for acquisition holdings.

The technique of structuring third party acquisition via a leveraged intermediary Dutch holding company is notalways tax effective, due to various interest deduction denial rules.

Effect on individual shareholders

As of 1 January 2007, a general tax rate of 15% is applicable to dividends, liquidation proceeds and capital gainsderived by individuals holding a substantial interest. A substantial interest will be held presented where anindividual owns (together with his spouse or other close relatives) at least 5% of the shares in a company. If theindividual is a Dutch resident, an additional levy of 10% is due as taxable income from substantial shareholdings issubject to a fixed rate of 25% (Box 2 income). The 15% tax is considered an advance levy that will be settled withthe final income tax computation.

Individuals holding shares as business assets

Any gain is taxed (at progressive rates) and any loss is deductible, if shares are a part of an entrepreneurs' income.

Companies holding shares

Any gain from shares is taxed (at corporate income tax rates), and any loss is deductible, unless the participationexemption is applicable.

Page 28 of 3 9Liquidations and Re organization

Mergers

Starting 1 January 1992, as a result of implementing the EU Merger Directive, Dutch tax law provides for a roll overfacility for a qualifying "stock merger" as well as a qualifying "enterprise merger". Qualifying share or enterprisemergers can be effected tax-free.

A stock merger may qualify for the roll over facility in a number of cases, which are similar to those for individualshareholders. In a share-for-share exchange, however, Dutch companies will in most cases rely on the applicationof the participation exemption, (under which capital gains realized on transfer by a company of qualifyingshareholdings are tax exempt). Accordingly, the stock merger facility is primarily relevant for individualshareholders.

Enterprise merger

In case of an enterprise merger (the transfer of a separate part of the enterprise or the whole enterprise by onecompany to another company) in exchange for shares in the latter company, the procedure can be done tax-freeunder the following conditions:

The transfer should be made in connection with a merger.The compensation received by the transferor consists of shares in the transferee. A small creditor accountis possible (e.g. 1 % of the shares, but not exceeding the amount of € 4,500).The transferee should not have losses qualifying for carry-forward.Both companies should be subject to the same tax rules.

The future levy of corporate income tax should be assured, while the shares acquired may not be disposed withinthree years. The Minister of Finance may, however, grant permission for earlier disposal without adverse Dutch taxconsequences.

One of the implications of an enterprise merger is that the assets and liabilities of the transferor must be acquiredby the transferee at the same book value for tax purposes, as they had to the transferor prior to the transfer. Thisrequirement should ensure that the tax authorities retain their tax claim on possible hidden reserves present inthe assets at the time of transfer. Even if not all the above conditions are met, a tax-free transfer could berequested. The Ministry will then issue so-called standard conditions, which must be approved by transferee andtransferor.

Legal Merger

As a result of a EU Directive, also a roll over facility for a legal merger can apply. This relates to mergers wherebythe shareholders in the absorbed company receive shares in the absorbing company, the assets and liabilities ofthe absorbed company are transferred by operation of law into the absorbing company, and the absorbed companyceases to exist. In summary, the two (or more) companies are amalgamated into one without liquidating theabsorbed company(ies). Alternatively, a new third company can absorb the assets and liabilities of the two (ormore) former companies. This procedure is referred to as a legal merger and is regulated by Dutch corporate law.

To avoid taxation on a capital gain realized on the transfer of assets and liabilities by the absorbed company, arequest can be filed with the tax inspector. Similar to the enterprise merger, so-called standard conditions willthen be issued, inter alia requiring the absorbing company to acquire the assets and liabilities at the book values(for tax purposes) used by the absorbed company. The implications of a tax-free legal merger are comparable tothose of a fiscal unity, where also (at least for corporate income tax purposes) only one taxpayer will remain.

With respect to mergers, it is noted that interest deduction denial rules may be applicable. This should always beassessed with a merger (for instance it may be possible that the new interest deduction denial rule for excessiveparticipation financing will be applicable for the acquiring company after the merger).

As of 1 January 2012, an interest deduction limitation rule is introduced for so-called acquisition holdings. Thededuction limitation for interest applies to acquisitions and expansions of an interest that are debt-financed andfor which the acquirer and the target enter into a fiscal unity for corporate income tax purposes. Importanttransitional rules will apply to existing fiscal unities. The deduction limitation does not apply to the financing ofacquisitions included in a fiscal unity before 15 November 2011. Also, profits of company acquisitions that wereincluded in the fiscal unity before 15 November 2011 are included in the own profit.

Division (split-off or split-up)

Companies can have a corporate division without liquidating the existing company. The benefit of a corporatedivision is that the assets and liabilities are transferred to another company by force of law, instead of beingtransferred separately. The corporate division is typically a transaction that is known only in countries of the

Page 29 of 3 9Liquidations and Re organization

European Union. Other jurisdictions will not always have a similar feature in their company law. Whencontemplating a corporate division the legal implications of the transfer of assets and liabilities in other countriesinvolved should be considered carefully.

Rules of company law

In general two types of corporate divisions can be distinguished: the split-up and the split-off. In a split-up allassets and liabilities of the transferring company are transferred to at least two existing or newly incorporatedacquiring companies. In turn, the acquiring companies issue shares to the shareholders of the transferringcompany. Alternatively, the different shareholders of the transferring company become shareholders of a differentacquiring company. The transferring company will cease to exist without being liquidated.

In a split-off, all or part of the assets and liabilities of the transferring company are transferred to at least oneexisting or newly incorporated acquiring company. The transferring company will not disappear. The acquiringcompanies issue shares to the shareholders of the transferring company, to the transferring company or to boththe shareholders of the transferring company and the transferring company itself. Where the transferringcompany is to become the sole shareholder of (one or more of) the acquiring companies, these acquiringcompanies have to be newly incorporated.

It is also possible to divide a company (split-up or split-off) and transfer the assets and liabilities of the transferringcompany to the acquiring company, against the issuance of shares in a parent company of the acquiring company.

A corporate division is possible where the transferring company is a Dutch legal entity (e.g. NV, BV, Stichting) andthe companies involved have matching corporate identities. The corporate division is accompanied by a legalprocedure, such as a proposal by the board of the transferring and acquiring companies, a shareholders resolution,notarial deed etc.

Rules of tax law

For tax purposes, the corporate division is qualified as a transfer of assets and liabilities. Without proper fiscalmeasures this may give rise to taxes on all capital gains to be recognized by the shareholders or the companytransferring assets and liabilities. This tax would be an undesired obstacle for corporate divisions and the lawtherefore provides that a corporate division predominantly driven by business reasons can be done tax-free.

The transferring company has to meet the following conditions in order for the facility to apply:

Both the transferring and acquiring companies are subject to the same tax regime.Both the transferring and acquiring companies have no losses to be carried forward.The hidden and fiscal reserves in the transferred assets and liabilities are preserved, i.e. the acquiringcompany maintains the book values of these assets and liabilities.

If these conditions are met, the acquiring company will succeed the transferring company with respect to theassets and liabilities that are transferred.

If one of these conditions is not met, both companies can file a joint request for the tax-free treatment of thecorporate division. Upon that request the Dutch tax authorities will issue a set of conditions aimed at securing thetax claim, under which the corporate division can proceed on a tax-free basis.

The tax rules provide for a recapture rule if, within three years after the division, the shareholder (or a group ofcollaborating shareholders) that has or obtains decisive control over the transferring company at the time of thedivision, loses its control. The same rule applies if the transferring company sells (part of) its interest in theacquiring company within three years after the division, in case the acquiring company issued shares to thetransferring company. Income or corporate income tax will then be due, as it is assumed that the corporatedivision was not predominantly driven by business reasons, unless the opposite is proven.

As of 1 January 2012, an interest deduction limitation rule is introduced for so-called acquisition holdings. Thededuction limitation for interest applies to acquisitions and expansions of an interest that are debt-financed andfor which the acquirer and the target enter into a fiscal unity for corporate income tax purposes. Importanttransitional rules will apply to existing fiscal unities. The deduction limitation does not apply to the financing ofacquisitions included in a fiscal unity before 15 November 2011. Also, profits of company acquisitions that wereincluded in the fiscal unity before 15 November 2011 are included in the own profit.

Page 3 0 of 3 9Liquidations and Re organization

Losses (1): Carry-back and Carry-forwardAs per 2007 loss compensation facilities have somewhat been restricted. Both resident and non-residenttaxpayers have a loss carry-back possibility of one year and an carry-forward possibility of nine years, on conditionthat the tax authorities issued a decree determining the loss.

Losses must be utilized in the order in which they are incurred, so that earlier losses must always be utilizedbefore the losses of later years.

Limitations for loss carry over can apply when there is a significant change in ultimate shareholders and, in relationto that, the company ceases its business activities or reduces its business by more than 70% . In case of ceasingbusiness activities, losses may only be carried forward if at least 70% of the shares are still held by the sameindividual shareholders. If the business is reduced by more than 70% and less than 70% of the shares are than heldby the same shareholders, existing losses may only be offset against future profits arising from the originalbusiness activities. These limitations have been introduced to prevent the trade in companies that haveconsiderable losses.

As from the tax year 2004 specific rules apply to pure holding companies and group finance companies. Lossesincurred by qualifying holding companies or companies active in the field of direct or indirect financing of relatedparties can only be offset against profits in preceding and following years if, in short, the nature and size of theactivities of the company in that particular year is comparable to the nature and size of the activities in the yearfrom which the tax losses originate (and in addition for finance companies, the balance of the receivables andliabilities on related parties of the Dutch company at the end of the financial year in which a taxable profit hasarisen may not exceed the balance of the receivables and liabilities of the financial year in which the taxable losswas incurred, , unless the taxpayer is able to substantiate that the change in the balance of the receivables andliabilities was not mainly intended to increase the loss settlement possibilities). In essence this rule prohibits thata pure holding company starts up new activities as a result of which it loses its status of pure holding for thereason of compensating its losses from holding activities with profits generated with other activities. Lossesincurred however after the holding company did lose its status as pure holding company can be compensated withfuture profits.

A holding or group finance company is defined as a company whose activities during the year or nearly the wholeyear mainly (at least 90% ) consists of holding participations and direct or indirect financing of affiliated companies.This loss restriction does not apply if at least 25 employees of the company are involved in other activities.

Page 3 1 of 3 9Losse s ( 1) : Carry-back and Carry-forward

Losses (2): Group TaxationProfits and losses of group companies may be combined by filing a consolidated tax return. The term for a groupthat submits a consolidated return is "fiscal unity". The Dutch fiscal unity regime as it is in place now isincorporated in Dutch tax law and entered into force as of 1 January 2003. In order to be able to file a consolidatedtax return for a particular year, the parent company must in principle hold at least 95% of the (legal and economicownership of the) issued share capital of the other company. The Dutch tax law is amended in such a way that theaforementioned ownership must represent at least 95% of the statutory voting rights. This extension is includeddue to new Dutch Civil Law rules in which it is also possible to have shares without voting rights. As such theextension aims to prevent shares without voting right to form a fiscal unity. Other conditions are that the parentcompany and the subsidiaries must have a corresponding financial year and they must be subject to the same taxregime.

Approval of the competent tax inspector is required. In order to get approval the parent company and thesubsidiaries that will be part of the fiscal unity should file a joint request. This request should include the date asper which the group consolidation should commence, which however cannot be earlier than three months prior tothe filing date.

A fiscal unity is allowed only if both the parent company and subsidiary are resident companies for Dutch taxpurposes. This means that companies incorporated under Dutch law but resident outside the Netherlands cannotform part of the fiscal unity. On the other hand, the new fiscal unity regime allows Dutch permanentestablishments of foreign groups to be included in the fiscal unity, provided that additional conditions are fulfilled.Not all members of a related group need to become part of a fiscal unity.

A fiscal unity terminates:

if any of the conditions imposed are no longer met;if the actual management of a foreign company of which the permanent establishment forms part of a fiscalunity is transferred to the Netherlands;if the actual management of a Dutch resident company that forms part of a fiscal unity is transferredoutside the Netherlands;upon joint request of the parent company and the respective consolidated subsidiary, but not earlier thanper the date the request has been filed.

The advantages of a fiscal unity are that only one consolidated tax return is to be filed on behalf of all theconsolidated companies, profits and losses of group companies can be offset against each other, transactionsbetween group companies can be eliminated for tax purposes and assets can under certain conditions betransferred within the group without triggering taxation with regard to capital gains or losses. In general,therefore, a very flexible situation exists.

Relief for losses incurred prior to fiscal unity, however, is limited. Such 'pre-fiscal unity losses' incurred by one ofthe participating entities may only be offset against profits derived through the same entity's business aftergranting of the fiscal unity. A similar limitation applies to the carry back of losses of the fiscal unity to pre-fiscalunity years.

As of 1 January 2012, an interest deduction limitation rule is introduced for so-called acquisition holdings. Theinterest deduction on so-called acquisition debt will be limited if an acquisition is financed with debt and theacquiring company and the target company subsequently forms a fiscal unity on or after 15 November 2011 (orwith which it will merge on or after 15 November 2011). This measure will also apply for legal mergers and division.Furthermore, this measure will also apply in case of third party debt financing (such as bank debt). The interestdeduction limitation rule works - in short - as follows:

Interest is deductible up to the amount of the "own profits" of the acquiring entity.There is an allowance that interest for an amount of EUR 1,000,000 (after calculation of the "own profits" ofthe acquiring company) is also deductible (franchise).However, if the interest exceeds the above amounts (e.g. "own profits" of the acquirer and the franchise),the interest will also be deductible if the interest is not regarded as excessive acquisition interest.Excessive acquisition interest is the total interest payable on the excessive part of the acquisition loan withrespect to the entities that forms part of a fiscal unity in the year at issue and in each of the previous years.The excessive part of the acquisition loan is determined by taken into account a fixed percentage over theacquisition price of the target company. The fixed percentage is 60% in the first year, to be reduced to 55%in the second year, etc. until it reaches 25% of the acquisition price (seventh year).

Page 3 2 of 3 9Losse s ( 2) : Group Taxation

Returns, Assessments and AppealsAn annual tax return must be filed, usually within five months after the closing of the preceding financial year,accompanied by amongst others a copy of the annual accounts and details of directors' remuneration. In the caseof a permanent establishment, the Dutch permanent establishment's accounts must be submitted together withthe tax return. The corporate income tax return must be completed clearly, fully and without reservations as tothe information which is necessary for the tax inspector to determine the amount of corporate income tax due.The director of the company has to sign the return before submitting the return to the Dutch tax authorities,however a power of attorney can be provided to a tax advisor to represent the company towards the Dutch taxauthorities.

Usually an extension for the filing of the tax return can be obtained after a written request, with a maximum ofnine months . Extensions of filing dates without condition are commonly granted to professional advisors. Whenaforementioned request is refused there is in general no possibility for an objection against that decision of thetax inspector. Extensions may lead to the issue of a provisional assessment.

Assessments

A provisional assessment for the current year is usually raised in the first month of the taxpayer's financial year.This provisional assessment is based on the information of the preceding two years. The taxpayer can indicate thatthe tax due will be lower than that of the provisional assessment and ask for an adjustment of the preliminaryassessment or appeal the assessment. It is possible that second provisional (or latter) provisional assessments arealso imposed.

Finally, the tax inspector must issue a final assessment based on the tax return filed and any additional informationrequested within three years after the closing of the financial year (plus the term of the enjoyed extension for thefiling of the return). Any provisional assessments issued before and withholding taxes are to be set off against thefinal assessment. Also interest may become due on the outstanding amount of taxes. It is noted that as of 2013,new rules for the interest on taxes for the years 2012 and onwards have become applicable (i.e. tax interest).

Tax interest

The new regime of the tax interest replaces the regime of the imposition interest. In practice, this means that thetax authorities will not calculate imposition interest anymore. Instead, they will charge a higher tax interest incertain cases.

In short, the following changes apply for the personal income tax and corporate income tax:

1. Effective date:The new regime is applicable to tax periods starting in 2012 or later (in case the book year deviates fromthe calendar year).

2. Interest calculation as of 1 JulyThe interest will be calculated 6 months after the end of the tax year. For personal income tax, this impliesthat the interest will be calculated as of 1 July 2016 (for the tax year 2015). For corporate income taxpurposes, this implies that the interest calculations will start 6 months after the end of the book year. Incase the book year equals to the calendar year, the calculation will also start as of 1 July 2016 (for the taxyear 2015).

3. Tax interest will be less often refundedTax interest will only be refunded (or paid out) if the preliminary tax assessment is determined later than 6months after the end of the calendar year (personal income tax) or book year (corporate income tax) andtherefore the tax inspector has taken too much time to determine the tax assessment involved. As astandard for determining a negative preliminary tax assessment based on a formal request, a period of 8weeks will be applicable. As a standard determining a negative preliminary tax assessment based on a taxreturn, a period of 13 weeks will be applicable

4. Period of interest to be paidThe period in which interest to be paid will be calculated, will end 6 weeks after the date of the taxassessment, either at the maturity of the last pay date. In certain cases this period may be shortened.

5. Tax interest rateThe rate of the tax interest will be connected to the higher percentage of the statutory interest for non-commercial transactions, with a minimum of 4% . For corporate income tax purposes, a higher rate applies.For this latter purpose, the rate is connected to the statutory rate for commercial transactions, with aminimum of 8% .

Collection interestPage 3 3 of 3 9Re turns, Asse ssm e nts and Appe als

Besides the tax interest, also collection interest can be calculated (NB. This was also the case under the old regimeof the imposition interest). Collection interest is applicable when either the tax authorities pays out a refund orwhen the tax assessment is paid too late by the tax payer.

Other remarks

In case a taxpayer files a request in which an estimated taxable amount is included and in which it is requested todetermine a preliminary tax assessment based on this estimated taxable amount and the request is filed before 1May of a certain year, it is noted that no tax interest should be calculated. As stated above, tax interest will be lessoften refunded.

Tax interest and other taxes

1. Inheritance taxesFor inheritance taxes the tax interest is calculated over the taxable amount of the inheritance. The periodfor which tax interest is calculated, starts 8 months after the death of the taxpayer, and will end on the daypreceding the expiry date of the tax assessment. In case the tax assessment is determined in conformitywith the tax return, the period for which tax interest is calculated will end (at least) 10 weeks after thereceipt of the tax assessment. In case the tax assessment is determined based on a request, the period forwhich tax interest is calculated will end 14 weeks after the receipt of the request. In case of inheritancetaxes, it is noted that no tax interest will be refunded.

2. Other taxesFor the imposition of additional tax assessments for wage taxes, VAT, transfer taxes, taxes on passengercars and motor vehicles, excise duties and environmental taxes, the following is noted.

The interest calculation for the aforementioned additional tax assessments, will be similar to the oldinterest regime (i.e. imposition interest regime). This implies that the interest period will start on the dayafter the end of the calendar year to which the tax relates and it will end on the day preceding theexpiration date of the tax assessment.

Tax interest will not be charged if the additional tax assessment is the result of a (voluntary or compulsory)improvement of the tax return and it is filed within 3 months after the end of the calendar year/book yearsto which the tax relates. Special rules are applicable in case of a refund.

Adjustments

When the tax inspector is of the opinion that any adjustments should be made to the tax return, he will notify thecompany in writing. Corresponding assessments may then be issued. When the final corporate income taxassessment already has been raised but which afterwards appeared to be incorrect due to new circumstances thatbecame known afterwards or due to fraud or also in certain other circumstances (for instance: if the taxassessment contained a too low amount of taxes), the tax inspector can issue a "revised" assessment. The right toissue revised assessments in normal circumstances expires five years after the end of the tax year concerned(extended by period that extension of filing is granted). Special rules apply if foreign sources of income areinvolved.

Objections to assessments and appeals

Any assessment issued gives the taxpayer the right to file an objection within six weeks after date of issuance ofthe decision. In case of a lack of time the taxpayer can decide to file a so-called pro-forma objection; as then thereasons for the objection against the decision will be send later to the tax authorities. The objection must be madein written included with the relevant data as to the taxpayer (amongst others registration number), to whichdecision the objection is addressed, the amount of tax due which is challenged in the objection. The collectorusually, if requested, postpones the collection of the tax due pending the decision of the inspector. The taxpayerhas the possibility to file one written objection against several decisions (to be challenged) of the tax authorities.The tax inspector has the obligation to invite the taxpayer for a meeting in order to listen to reasons for theobjection. This meeting will be held by another tax inspector than the inspector responsible for the decision. Thetax inspector must in principle decide on the objection within at the latest 6 weeks after receipt of the objection. Ifthe taxpayer agrees this term can be extended up to in principle a year.

If the taxpayer does not agree with the decision of the tax inspector on his objection, the taxpayer has the right tofile an appeal at the lower Court, and subsequently, on a matter of law only, to the Supreme Court. The appeal mustbe filed by the taxpayer (or his authorized representative) at the latest 6 weeks after the date of the decision ofthe tax inspector on the objection. An appeal is possible against all the decisions of the tax authorities to which it isopen to file an objection.

Page 3 4 of 3 9Re turns, Asse ssm e nts and Appe als

Delays

If the return or information requested by the inspector is not submitted within the legal time limit or within suchextended time limits to which the inspector has agreed, an estimated assessment may be issued. The burden ofproof would be on the taxpayer to show that the amount so assessed is excessive.

Collection of tax

Provisional assessments for the current year can be paid in monthly instalments. It is stated on the assessmentwithin which period the tax should be paid to the tax authorities. It is possible that a collector will grant anextension on collection pending decision on an appeal. The tax collector can also grant an extension of payment ifthe taxpayer is unable to pay the tax due and he requests spread payment. If the assessment is not fully paid onthe due date, interest will be charged on the amount unpaid effective from that date until the date of payment(collection interest). h3>Penalties The law contains provisions penalizing wilful misstatements of profits, thefailure to file tax returns or the too late filing of tax returns. These penalties are stated as a percentage of tax dueand may be as high as 100% . Apart from these tax penalties, certain serious defaults like fraud, can be penalizedwith criminal prosecution. When the corporate income tax return is filed too late (after the term of the reminderto file the return has expired) the penalty for this omission amounts to at the maximum EUR 4,920 (based on adecree, a penalty can be expected of 50% of aforementioned maximum, therefore EUR 2,460). The amount of thepenalty is to be paid together with the amount of the corporate income tax due.

As stated above, apart from the abovementioned tax penalties, a default can be penalized with criminalprosecution. It is therefore possible that criminal penalties can in place.

Period for filing returns and additional assessments must be issued within three years following the end of the taxyear for which the return is filed. If an extension is granted in respect of the time limits applicable to the filing ofreturns, the extension is added to the three-year period. If the tax inspector could not have been aware of ameaningful fact when he first determined the assessment or if the taxpayer was not of "good faith", he is entitledto issue an additional assessment within five years of the year concerned (plus any postponement of the filing dategranted to the taxpayer). If the additional assessment relates to foreign source income, the term can be extendedto twelve years. Such an additional assessment may be accompanied by a penalty of up to 100% of the additionaltax payable, but only if the omission of the meaningful fact was caused by the taxpayer's wilfulness or grossnegligence. Depending on the degree of the taxpayer's culpability and on possible extenuating circumstances, thispenalty can be partially reduced.

A taxpayer has six weeks to object to an additional assessment with the tax inspector. Against the decision of thetax inspector he has again six weeks to appeal with the Appeal Court. The court's decision may be disputed, withinsix weeks of its mailing, by either the taxpayer or the tax inspector (Ministry of Finance) with the Dutch SupremeCourt.

Tax Audits

District tax auditors undertake tax Audits of companies and unincorporated businesses periodically.

Page 3 5 of 3 9Re turns, Asse ssm e nts and Appe als

Subsidiary versus BranchEach company's unique circumstances will steer it toward one or the other means of starting up activities in theNetherlands: via a Dutch branch (possibly creating a taxable permanent establishment in the Netherlands) or via aDutch subsidiary. In making this decision, not only the tax consequences should be considered, but also theoperational consequences.

Bilateral tax treaties concluded by the Netherlands with many countries generally provide that withholding tax ondividends from a Dutch subsidiary to its foreign parent is in many cases reduced to 5% , sometimes even 0% .Assuming the 5% rate applies, total effective Dutch income tax on remitted earnings would be 28.75% (e.g. Profit =100, after corporate income tax of 25% : profit = 75. A 5% withholding tax on 75 = 3.75. Total effective corporateincome tax = 25% + 3.75% = 28.75% ). In the absence of a treaty, the dividend withholding tax rate is 15% .

The current corporation tax rate is 20% for the first EUR 200,000 of taxable income and 25% on any income inexcess of EUR 200,000. No withholding tax is levied on the distribution of dividends by a subsidiary established inan EU member state to its parent company in another EU member state, provided the parent company holds atleast 5% of the subsidiary's capital (or, in certain cases, voting rights). The minimum holding requirement in theNetherlands is as per 1 January 2009 reduced to 5%

No minimum holding period (the time the shares must be held by the parent company before the exemption ofwithholding tax applies) is applicable in the Netherlands. The minimum holding period in other EU countrieshowever can be up to 24 months. A Dutch branch of a foreign company is subject to the normal corporate incometax rate of 20.0% - 25% . However, no withholding tax on remitted earnings is due. Therefore, in case Dutchdividend withholding tax would be due on dividend distributions by a Dutch subsidiary to its parent company, theinitial advantage for that parent company to have a branch in the Netherlands would be that the total Dutcheffective income tax rate on remitted earnings is lower (e.g. in case the applicable withholding tax rate is 5% , theeffective income tax rate can be limited to 25% rather than 28.75% ). If initial losses are anticipated, the Dutchbranch of a foreign company has another advantage over a subsidiary. For Dutch tax purposes, losses can be offsetagainst future Dutch profits, whilst for foreign tax purposes, the same losses can often as well be utilized by thehead office in its current-year tax return. Use of a Dutch branch may not have the above advantage in situationswhere it is anticipated that the operation will only break even at first, or both the Dutch branch and the foreignhead office will be profitable. This is because the branch's income is subject to current taxation in both theNetherlands and the foreign country. In many cases, however, the Dutch source income will be tax exempt in theother country under the provisions of a tax treaty. Alternatively, having a Dutch subsidiary, may enable a parentcompany to avoid or defer taxation in its home country, simply by not distributing dividends to the foreign parentand instead reinvesting the Dutch subsidiary's earnings.

Subsidiary comparison

Pros Cons

Liability of shareholders is limited to the extent of theircapital contribution. More expensive, complicated and time-consuming.

Unless agreed otherwise by contract, foreign parentcompany is not responsible for debts, obligations andliabilities of the Dutch subsidiary.

Withholding tax on remitted earnings in some cases.

Dutch nationals prefer dealing with a Dutch subsidiaryas opposed to a foreign branch office.

Publication of financial statements in full is mandatoryfor a medium-sized or large company.

If no remittance of profits to the parent is necessary,further taxation can be deferred by reinvesting thesubsidiary's earnings.

Liability to various Dutch taxes may arise when thecompany liquidates and the shareholders have notacted in good faith.

Tax Treaty protection Appointment of at least one director is required by law.

Branch Comparison

Pros Cons

Relatively easy to set up and costs are generally lower.Operates as a foreign company and has no Dutch legalpersonality, so acceptance by Dutch national partiesmay be affected.

No withholding tax on remitted earnings. Foreign parent company is fully responsible for debts,obligations and liabilities of the Dutch branch.

Page 3 6 of 3 9Subsidiary ve rsus Branch

No requirement to publish the financial result of thebranch (except foreign insurance companies andbanks).

Generally no Tax Treaty protection

Losses of Dutch branch may be offset againsttaxes/profits of the foreign head office.

Page 3 7 of 3 9Subsidiary ve rsus Branch

Taxation of Resident CompaniesThe term 'residence' is not defined in Dutch tax law. The residence of a company is determined in the light of theparticular circumstances of each case. The test normally applied is whether the effective place of management ofthe company is situated in the Netherlands. Companies incorporated in the Netherlands are deemed to beresident in the Netherlands for corporate income tax purposes under domestic tax law (which may be however beoverruled by EU Directives or double taxation agreements).

A so-called European company, better known as "Societas Europaea" or "SE" (a new Pan-European company formwhich can be incorporated within the EU), which upon incorporation is governed by Dutch law, is also deemed to beresident in the Netherlands for corporate income tax purposes under domestic law. Resident companies are inessence subject to Dutch tax on their worldwide income. As per 2006, the European Co-operative Company (SCE) isintroduced. As the features of the SCE are comparable to the SE, in Dutch law the SCE is made equal to the SE.However, certain regulations that specifically apply to Dutch co-operations can also apply to SCE's.

Corporate income taxes in the Netherlands

Resident corporate entities such as NV's (an SE is modelled to the features of a NV) and BV's and other entitiescarrying on business are subject to corporate income tax on their worldwide income (except for exemptions offoreign profits according to a tax treaty or unilateral relief provisions). Non-resident corporate entities are subjectto this tax only on certain specified Dutch sources of income. The most important Dutch corporate entities subjectto corporate income tax are BV and NV companies. Cooperative, mutual insurance and banking associations andcertain public enterprises are also subject to this tax. Other entities that carry on a business are subject tocorporate income tax only on the results of that business. Throughout this text, the term 'company' includes allthese entities unless indicated otherwise.

Page 3 8 of 3 9Taxation of Re side nt Com panie s

NFIA EuropeThe Hague | London

NFIA North AmericaWashington DC | New York | Boston | Chicago | Atlanta | San Francisco

NFIA ChinaShanghai | Beijing | Guangzhou | Chongqing

NFIA Taiwan

NFIA Korea

NFIA IndiaNew Delhi | Mumbai

NFIA Singapore

NFIA Malaysia

NFIA Middle East & TurkeyDubai | Tel Aviv | Istanbul

NFIA Brazil

NFIA worldwide

http://www.nfia.nl/

http://www.nfia.co.uk/

http://www.nfia.com/

http://www.nfia-china.com/

http://www.nfia-taiwan.com/

http://www.nfia-korea.com/

http://www.nfia-india.com/

http://www.nfia-singapore.com/

http://www.nfia-malaysia.com/

http://www.nfia-gulfregion.com/

http://www.nfia-turkey.com/

http://www.nfia-brazil.com/

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