Following a ruling by the Dutch tax authority last month, the existing VAT exemption for investment firms is no longer applicable to collateralised loan obligation (CLO) transactions in the Netherlands.
An annual 21% tax now applies to the management fee of CLO vehicles, not only relation to new transactions but also backdated to April 2019.
It is expected that the Dutch tax authority’s decision will be challenged given the extent of its impact on investors, but there are no guarantees that it will be revoked. The decision was based on the 2015 Fiscal case in the Court of Justice of the European Union, which ruled that VAT exemption is only applicable in cases where there is specific government supervision of the fund or its management.
Aside from increasing the financial hit, the backdating of fees means that collateral managers and arrangers must consider moving their structures to a different jurisdiction as soon as practicable.
One jurisdiction that stands out as an attractive alternative for locating CLO special purpose vehicles (SPVs) in the EU is Ireland. Under the Irish regime:
- SPVs are not regulated, meaning Irish CLOs do not need to be licensed or authorised by Ireland’s regulator
- Corporate taxation is low, especially when utilising an Irish Section 110 vehicle (i.e. an Irish tax resident company that qualifies for tax neutrality under Section 110 of the Irish Taxes Consolidation Act 1997)
- There are withholding tax exemptions on the payment of interest under both the Quoted Eurobond Exemption and a qualifying persons exemption
- Structuring options allow for bankruptcy remoteness.
Get in touch
IQ-EQ has been operating in Ireland for over 30 years and our local experts can support the transfer, set-up and ongoing administration of your CLO. We have a dedicated team of accountants and transaction managers who are very experienced in the management of SPVs in Ireland. For more information, or to discuss your requirements, please contact me.