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 organise 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.
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.
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 optimisation.
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.
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.
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.