Court ruling on application Merger Facility Dutch Cooperative

Thursday 29 March 2012

The Supreme Court of the Netherland recently ruled that the special tax regime for merger by exchange of shares is not applicable if a “standard”  Dutch cooperative is be the acquiring company.

Normally the Council Directive of common system of taxation in case of mergers applies if a company by virtue of the issuance of shares or redemption of shares acquires more than 50% of the voting rights in a company that is established in the EU or EEA (European Economic Area). It is possible that under specific conditions the gain arising out of the transfer of shares will be tax free and the tax claim on the exchanged shares will be passed to the issued shares. For a facilitated merger with an company established outside the EU or EEA there will be a stronger ownership requirement.

In the case of the Dutch Supreme Court the cooperative acquired all the shares in the capital of a private limited liability company from its members. The members of the cooperative received a credit on their member account for the nominal value of the shares transferred. A former shareholder (a holding company) of the private limited liability company requested the application of the merger by exchange facility so the gain arising out of the transfer of shares would be tax free and the tax claim will be passed to the issued shares and the received credit of the member rights on the member account.
The Supreme Court rendered that this merger by exchange of shares facility is not permitted if a standard cooperative is the acquiring company.  A standard cooperative implies that the cooperative according to its articles of association, has a member account instead of shares or similar participation rights. In this case there is no possibility to apply the Council Directive on the securities equivalent to the issued shares.

It should be possible that under specific circumstances  a “special” cooperative will be allowed to apply the mergers by exchange of shares facility. The Supreme Court noticed that the decision of the Court or the proceedings documents do contain arguments of the holding company that in this case the cooperative is a special cooperative with a capital divided in shares or equivalent instruments. 
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