Central and Eastern Europe is the manufacturing heartland of the European Union, and the region’s industrial groups have grown from contract manufacturers into owners of brands, plants and distribution across several countries. As they have grown, so has the gap between their scale and their structure, and many capable manufacturing groups are still owned through an ad hoc arrangement that made sense when the group was a single factory.
The structure lags the business
A manufacturing group that has added plants in neighbouring countries, acquired a competitor, and built its own distribution often owns all of it directly from the founding country, with no holding layer to organize financing, ownership or governance. A Dutch holding provides that layer, consolidating ownership under the participation exemption described in our note on the participation exemption, and giving the group a single place to raise and hold debt.
The arrangement has a recognisable shape: shares in the second and third plants sit with the founder or the original operating company, working capital moves as informal current accounts rather than documented loans, and one plant guarantees another’s facility without being paid for it. The difficulty starts when that has to answer to five tax authorities at once.
A lender finds no entity whose balance sheet is the group, so it takes security plant by plant and sizes the facility to the weakest. A tax authority reads the same current accounts as transactions nobody priced. Both surface at a refinancing or an audit, and the layer that fixes them only pays if money then reaches it without leakage.
The dividend route up to the holding
The mechanism is the parent-subsidiary regime. Article 3 of the consolidated Parent-Subsidiary Directive 2011/96/EU gives parent company status to a company of a member state holding a minimum of 10 % in the capital of a company of another member state meeting the same conditions, and articles 5 and 6 bar withholding tax on the distribution and on the receipt alike. Neither exempts the dividend in the parent’s hands: article 4(1) lets the parent state either refrain from taxing those profits or tax them while granting a credit for the subsidiary’s corporation tax, so a clean receipt at the top comes from the Dutch participation exemption, not the directive.
Article 3(2) lets a member state replace the capital criterion with a voting rights criterion by means of bilateral agreement, and withhold the benefit from companies not maintaining the qualifying holding for an uninterrupted period of at least two years. That two-year condition is the one transposed unevenly, so the same group can qualify in one jurisdiction and fail in another.
Article 1(2) also denies the benefits to an arrangement whose main purpose or one of whose main purposes is a tax advantage defeating the directive, where it is not genuine having regard to all relevant facts and circumstances, and article 1(3) treats it as not genuine to the extent it lacks valid commercial reasons reflecting economic reality. Fail that test and the plant country withholds at its domestic rate, leaving a refund claim that takes years.
Financing capital-intensive expansion
Manufacturing is capital-intensive, and a group expanding its plants and equipment needs financing that a coherent European structure makes easier to raise. A Dutch holding as the borrowing entity, with the plants held beneath it, presents a clean structure to lenders, and the interest position has to be managed with the Dutch interest deduction rules in mind, set out in our note on interest deduction limits in the Netherlands. Intragroup financing between the holding and the operating plants has to be priced at arm’s length and documented.
The plants were built one country at a time. The financing to build the next ones is far easier to raise through one European structure than through a dozen national ones.
The Union-wide constraint is article 4 of the Anti-Tax Avoidance Directive 2016/1164, under which exceeding borrowing costs are deductible only up to 30 percent of earnings before interest, tax, depreciation and amortisation. Member states may also let a taxpayer deduct up to EUR 3 000 000 regardless, and may permit an equity ratio escape and indefinite carry-forward. That de minimis belongs to the taxpayer, and counts once for the whole group only where the member state has taken the separate option in article 4(1) of applying the rule at group level, so a group with plants in five countries may have five cushions or one.
The Dutch version is tighter. Article 15b of the Wet op de vennootschapsbelasting 1969, as in force for 2026, disallows the net interest balance above the higher of 24,5 percent of adjusted profit or one million euro, with no group escape enacted. One feature favours manufacturers: adjusted profit under article 15b(3) adds back depreciation and write-downs on fixed assets, so a group that has just built a plant has more capacity than its profit suggests.
Withholding tax on interest inside the group
Interest going back up raises a different question. The Interest and Royalties Directive 2003/49/EC exempts interest arising in a member state from any taxes on those payments where the beneficial owner is a company of another member state. The threshold differs: article 3(b) defines an associated company by a direct minimum holding of 25 % in the capital, so a chain clearing the parent-subsidiary ten percent can still fail here.
Beneficial ownership is the harder filter. Article 1(4) treats a company as beneficial owner only if it receives the payments for its own benefit and not as an intermediary. A financing entity borrowing at one rate and on-lending a fraction higher, with no capital and no credit risk, is what a source state challenges, and the defence is its balance sheet.
The Netherlands applies the same logic outbound. Article 2.1 of the Wet bronbelasting 2021 taxes an affiliated recipient in a low-taxed jurisdiction, and artificial arrangements lacking valid commercial grounds, at the highest corporate rate under article 4.1, which article 22 of the Wet Vpb puts at 25,8 percent for 2026. Article 8c separately disregards connected intragroup interest where no real risk is run, real risk being presumed only if covering equity reaches one percent of loans outstanding or two million euro, whichever is lower.
Transfer pricing across the supply chain
A manufacturing group with plants in several countries and sales across the region runs an internal supply chain, and the pricing of goods, services and financing between the group’s entities has to reflect the real functions, assets and risks each one bears. This is where transfer pricing meets manufacturing directly, and a group that has never documented its intercompany pricing is carrying a risk that grows with its size. Getting the policy right is a defensive necessity, not an optimization.
The analysis turns on facts visible on the factory floor. Whether a plant is a toll manufacturer, a contract manufacturer or a full-fledged producer depends on who owns the raw material and work in progress, who bears idle capacity when an order is cancelled, and who owns the process know-how. A group calling a plant limited-risk while it buys its own inputs and absorbs its scrap has a contract describing another company.
The Dutch hook is article 8b of the Wet Vpb 1969, which determines the profit of affiliated entities as if arm’s length conditions applied and requires records showing how the prices came about. The danger is asymmetry: an upward adjustment in one country without a matching downward one elsewhere taxes the same profit twice while a mutual agreement runs.
The documentation the group has to hold
Documentation is where the policy becomes verifiable, and its thresholds are statutory. Article 29g of the Wet Vpb 1969 requires a group entity taxable in the Netherlands to hold a master file and a local file by the corporate tax filing deadline, in Dutch or English, where consolidated revenue reached fifty million euro the year before. Many CEE manufacturers cross that line before calling themselves multinationals.
The country-by-country report is the next tier. Article 29c(5) lifts the obligation only below seven hundred and fifty million euro of consolidated revenue, the threshold Directive 2016/881/EU sets for the OECD base erosion and profit shifting Action 13 standard in Union law. It reports revenue, profit before tax, tax paid, employees and tangible assets per jurisdiction, exchanged automatically within fifteen months. Plants and payrolls are where they are, so profit booked where neither sits is what an analyst marks.
Substance from real operations
A manufacturing group has substance in abundance at the operating level, but the holding itself needs its own genuine function and decision-making in the Netherlands, as set out in our note on Dutch substance requirements. The requirement is met by giving the holding a real role in financing, ownership and group governance, run by people with the authority to make those decisions in the Netherlands.
In practice that means a board that meets where it says it meets and decides things with consequences: the terms on which the group borrows and on-lends, whether to guarantee a plant’s facility. Minutes ratifying decisions taken elsewhere document the opposite. Where the holding runs financing, article 8c measures the same idea against the loan book.
Substance is tested separately by each jurisdiction. The plant country asks whether the recipient is beneficial owner and whether the arrangement is genuine under article 1(2), where a tax advantage need only be one of the main purposes to engage the test. The Netherlands asks whether the company is effectively managed there, and a lender whether the borrower controls the assets generating the cash. The highest of those tests governs.
Preparing for investment or succession
Many of these groups are family-owned and approaching a generational transfer, or considering external investment to fund the next stage of growth. A clean Dutch holding above the operating business is a structure that a private equity investor, a lender or an incoming generation can understand and value, whereas an ad hoc structure is a source of friction and discount. The regional context is set out in our note on structuring Central European investments through Dutch BV holdings, and for these manufacturing groups the holding is often the first step in preparing the business for its next owner.
Diligence finds the same items every time: intercompany balances never papered, guarantees given for nothing, dividends paid without checking the holding period, a master file never prepared. Together they read as a group that does not know what its own structure does, and that is the discount.
Sequencing matters, because several conditions run on the clock. A holding period of up to two years can be required in the paying jurisdiction before the directive exemption is available, and a master file relates to a year already closed. Work done two or three years ahead is housekeeping. The same work during diligence is a red flag and is priced as one.
Montclare runs a dedicated CEE desk, structuring the corporate, tax and holding architecture for groups and families entering Europe through the Netherlands. Our services are set out on our services page.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.