Most holding structures are designed twice. The first time on tax grounds, producing a chart of entities, participations and flows. The second time years later and under pressure, when a shareholder dies, a family branch dissents, or an acquirer asks who may bind the company. Governance design is the second drawing, done first. Dutch company law leaves an unusually wide drafting margin for the BV, and the choices embedded in the deed of incorporation determine not only how decisions are taken but where, a question with direct fiscal consequences.
The organs of a BV and what each one really controls
A BV has two mandatory organs and one optional. The general meeting appoints directors under article 2:242 of the Civil Code and, as the organ competent to appoint, may suspend and dismiss them at any time under article 2:244; it adopts the annual accounts under article 2:210, amends the articles under article 2:231 and resolves on distributions under article 2:216. The management board manages the company, subject to limitations in the articles, under article 2:239, and represents it externally under article 2:240.
Most of that allocation is a default rather than a fixed rule, which is the drafting margin in practice. The articles may limit the power to determine distributions or confer it on another organ, may give the appointment of a director to the meeting of holders of a class of shares, and may restrict representation to named directors or require them to act jointly. That margin has limits: under article 2:210 lid 4 a resolution adopting the annual accounts may not be made subject in the articles to the approval of any organ of the company or of a third party.
Two features of that division are routinely underestimated. First, the board is required to be guided by the interest of the company and the enterprise connected with it, not by the interest of the shareholder who appointed it, which is the express standard of article 2:239 lid 5. That duty is not disapplied by a shareholders agreement, and it has an operational edge in lid 6: a director does not take part in the deliberation and decision-making where he has a direct or indirect personal interest conflicting with that interest, and where the board is left unable to resolve, the decision passes to the supervisory board or, in its absence, to the general meeting unless the articles provide otherwise.
Second, representation authority towards third parties is broad. Article 2:240 lid 3 makes the authority of the board and of each director to represent the company unlimited and unconditional except where the law provides otherwise, so an internal requirement that a director obtain approval before committing the company does not reach the counterparty. What the articles can do is govern who represents: lid 2 allows representation to be confined to one or more directors or made joint, and a restriction of that kind, being one the law permits, may be invoked by the company. Internal governance and external authority are different instruments.
Distributions sit at the intersection. The general meeting resolves, and may do so only so far as equity exceeds the reserves that must be maintained by law or by the articles, but the resolution takes effect only once the board approves it, and the board must withhold approval where it knows or ought reasonably to foresee that the company will be unable to continue paying its debts as they fall due. Directors who let a distribution through knowing or having had to foresee that outcome are jointly and severally liable to the company for the shortfall it caused, with statutory interest, unless a director proves that the distribution was not his fault and that he was not negligent in taking measures to avert its consequences; a recipient who knew or ought reasonably to have foreseen the same is liable up to the amount or the value of what he received, again with statutory interest; and article 2:216 lid 11 switches off the whole of lid 3, and with it both liabilities, for distributions made in shares of the company’s own capital or in credits on shares not fully paid up. In a holding company that exists to receive and on-pay dividends, that is where the board’s independent judgement is tested annually, and where personal exposure most often begins.
One tier or two, and when the choice is not free
The classical Dutch model separates management from supervision: a management board and a supervisory board, charged by article 2:250 with supervising the policy of the board and the general course of affairs and with advising it, and, where the articles so provide, approving specified board decisions, which article 2:239 lid 3 permits to be imposed only by or under the articles. The alternative is the single board of article 2:239a, with executive and non-executive directors sitting as one organ and allocating tasks internally by regulation or by the articles. The two are alternatives rather than a menu: article 2:250 lid 1 allows the articles to provide for a supervisory board unless the single board allocation has been applied. Article 2:239a also fixes a floor that no allocation of tasks may cross, since supervision of the performance of the directors cannot be taken away from the non-executives, and the chairmanship, the nomination of directors for appointment and the setting of executive remuneration cannot be given to an executive director; under the same article the non-executive directors must be natural persons.
The single board suits groups whose supervision is exercised by people who also need the operating detail. The two tier model suits situations where supervision must be visibly separate, typically where investors, lenders or family branches outside management require a distinct check, and it carries an information duty that reads as a design specification: under article 2:251 the board must supply the supervisory board in good time with the data necessary for its task, and must inform it in writing at least once a year of the main lines of strategy, the general and financial risks and the company’s management and control systems.
A non-executive carries the same duty of care as an executive. Under article 2:9 every director answers for the general course of affairs and is liable in full for mismanagement unless, having regard also to the tasks allocated to others, no serious blame attaches to him and he has not been negligent in taking measures to avert the consequences. The internal allocation of tasks affects the assessment of liability but does not confer immunity.
The choice ceases to be free where the statutory large company regime applies. Article 2:263 attaches the filing that starts the clock to three conditions taken together: issued capital and reserves reaching a threshold amount fixed by royal decree, a works council established by the company or a dependent company under a statutory obligation, and, as a rule, at least one hundred employees working in the Netherlands across the company and its dependent companies. The regime itself bites later, since under article 2:264 the reserved powers apply once that filing has been registered for three uninterrupted years. It then requires a supervisory board of at least three members or, where the single board has been adopted, non-executive directors in its place under article 2:274a; it subjects the board decisions listed in article 2:274 to the approval of that body, while providing in the same place that the absence of approval does not affect representation authority; and in the full regime it moves the appointment of directors to the supervisory board under article 2:272, a power that no binding nomination may limit.
The ways out of that regime matter to holding companies in particular, and the first of them is the one a group with a foreign parent meets. Article 2:265 disapplies that appointment power, both where it sits with a supervisory board and where it sits with the non-executive directors, for a company in which a participation of at least half of the issued capital is held by a legal person the majority of whose employees work outside the Netherlands, or by its dependent companies; its letters b and c extend the same treatment to holdings under a mutual cooperation arrangement by several such legal persons or companies and to the further combinations those letters describe. Lid 2 takes the exception away again where the employees of the company, together with those of that legal person, are in their majority employed in the Netherlands, and lid 3 counts the employees of group companies towards the legal person. Article 2:265a disapplies that appointment power, in its two tier form and in the single board form alike, where the entire issued capital is provided, or caused to be provided, by one natural person, by two or more natural persons under a mutual cooperation arrangement, by a foundation, an association or a public law legal person of the kind referred to in article 2:1 for its own account, or by two or more such legal persons under a mutual cooperation arrangement. Its lid 2 puts the spouse and the registered partner on the same footing as that natural person, and puts blood relatives in the direct line there too if they enter into such a cooperation arrangement within six months of that person’s death. Article 2:263 lid 3 removes the filing obligation altogether for a company whose activity is confined exclusively or almost exclusively to the management and financing of group companies and of its and their participations, provided the employees of the company and those group companies work in their majority outside the Netherlands. Groups approaching the criteria should model the consequence before it arrives rather than during a due diligence exercise.
Where power is actually allocated
The flexible BV regime permits share classes with materially different rights. Under article 2:228 lid 5 the articles may attach no voting right to shares, but only for all shares of a given class and only with the consent of every holder of that class or where the articles so provided before issue. Under article 2:216 lid 7 a class may be given no right, or a limited right, to share in profit or reserves, an arrangement for which lid 8 requires the consent of every holder of shares whose rights the amendment of the articles prejudices. The two cannot simply be stacked on the same share: the last sentence of article 2:228 lid 5 prevents voteless shares from being denied any share in profit or reserves, article 2:190 provides that rights carrying neither a vote nor a claim to profit or reserves are not shares at all, and article 2:175 lid 1 requires that at least one share with voting rights in the general meeting be held by someone other than, and otherwise than for the account of, the company or one of its subsidiaries.
Classes may be given the right to appoint their own director, which converts a shareholder arrangement into a constitutional one, provided under article 2:242 lid 1 that every shareholder with voting rights can take part in the decision-making on the appointment of at least one director. Transfer restrictions, offer obligations and drag arrangements can sit in the articles rather than only in contract, and article 2:195 is where the default offer obligation to fellow shareholders, the possibility of excluding transferability for a fixed period and the alternative restrictions live. The last two carry different conditions, and they are not interchangeable: the exclusion under lid 3 requires the consent of all the holders of the shares it covers, while an alternative restriction under lid 4 must be drafted so that a shareholder who wants to transfer receives, if he asks for it, a price equal to the value of his shares as fixed by one or more independent experts.
That distinction matters more than most parties appreciate, and the sanction shows why. A transfer made in breach of a restriction in the articles is invalid under article 2:195 lid 3 and lid 4; a right in a shareholders agreement is a contractual claim between the parties to it, and a resolution taken in breach of it may nonetheless be validly taken. Reserved matters, the list of decisions requiring shareholder or supervisory approval, therefore need a deliberate answer to a prior question: is this a covenant among owners, or a limit on the organ itself. Where the second is intended, article 2:239 lid 3 is the address, since board decisions can be made subject to the approval of another organ of the company only by or under the articles.
The articles may also require the board to follow the instructions of another organ of the company, in the ordinary case the general meeting, under article 2:239 lid 4. The board must follow them unless doing so would be contrary to the interest of the company and the enterprise connected with it. This is the sharpest instrument available to a controlling shareholder and, for that reason, the one most likely to be read back later as evidence of where management actually sits.
A governance design that cannot survive the death of the person who drew it is not a design; it is a description of the present.
The STAK: separating control from economics
The stichting administratiekantoor is a foundation that holds legal title to shares and issues depositary receipts to the former shareholders. A foundation is, under article 2:285, a legal person without members that pursues an object stated in its own articles, and it does not acquire members merely because those articles empower named persons to fill vacancies in its organs. The foundation votes; the receipt holders take the dividends and the capital appreciation. The terms of administration set out what its board may and may not do, when receipt holders must be consulted, and on what conditions receipts may be transferred or decertified.
Its utility in a family context is structural rather than fiscal. Economic entitlement can be distributed across a generation, including to heirs with no aptitude for the business, while voting remains consolidated in a board chosen for competence. It also addresses fragmentation: each successive inheritance divides receipts, not votes, so the general meeting does not gradually become unworkable.
The design questions concern the foundation’s own board, and they are usually the ones given least attention. Who appoints and removes its directors, and by what majority. Whether receipt holders have meeting rights at the company’s general meeting, which under article 2:227 exist where the company’s articles attach them to the certificates, and which, once attached, cannot be withdrawn without the consent of the receipt holders concerned unless the power to amend was expressly reserved when they were granted. What happens on deadlock. Whether the terms of administration can be amended, by whom, and against what standard. A STAK with a self perpetuating board and no amendment mechanism is a governance instrument that has been welded shut. Transparency should also be modelled at the outset, since beneficial ownership reporting through the KVK register looks through the certification to the persons behind it: article 3 of the Uitvoeringsbesluit Wwft 2018 treats as beneficial owners of a BV the natural persons who ultimately own or control it through a direct or indirect holding of more than 25% of the shares, of the voting rights or of the ownership interest, or through other means, a point examined in our note on the UBO register and foreign shareholders.
Governance is where substance is decided
The tax consequence of governance design is no longer indirect. Where a body is established is assessed according to the circumstances under article 4 of the Algemene wet inzake rijksbelastingen, and a company incorporated under Dutch law is deemed established in the Netherlands for the purposes of the corporate income tax act by article 2 lid 5 of the Wet op de vennootschapsbelasting 1969. That fiction is expressly switched off for a list of provisions that includes the participation exemption of articles 13 to 13d and the fiscal unity of article 15, which is to say for the provisions a holding company is usually there to use. Where another state claims the company as its resident, the outcome then depends on the tiebreaker in the applicable treaty, and for Dutch treaties covered by the multilateral instrument that tiebreaker is no longer mechanical: the Netherlands accepted article 4 of that convention without reservation, and where the other contracting jurisdiction has done the same the competent authorities endeavour to determine residence by mutual agreement, having regard to the place of effective management, the place of incorporation and any other relevant factors, with no treaty relief at all in the absence of agreement except as they may agree.
Access to withholding exemptions, to reduced treaty rates and to a favourable outcome under general anti abuse tests depends on the same factual record. The ruling policy in force since 1 July 2019 will not open pre-consultation on a ruling with an international character unless the group carries on real operational activities in the Netherlands, and unless such activities are carried out for the account and risk of the applicant with sufficient relevant personnel present in the Netherlands at group level and fitting the entity’s function within the group, a requirement the policy states does not by its nature apply where the certainty sought is that there is no non-resident corporate tax liability under article 17 or 17a of that act. The same policy refuses pre-consultation where saving Dutch or foreign tax is the sole or decisive motive for the transactions, subject to the exceptions it states.
Governance therefore produces the evidence, or fails to. Where the board meets and who attends; whether directors receive papers in time to form a view; whether the minutes record deliberation or ratification; whether the reserved matters list is drafted so broadly that every decision of consequence is in fact taken by the shareholder abroad. An instruction right exercised on operational matters, or a board that has never once declined a proposal, will be read for what it shows, alongside the wider expectations set out in our review of Dutch substance requirements.
The point is not to stage decision making. It is that a board with real authority, real information and real capacity to say no is at once the correct governance answer and the durable substance answer. Where the two appear to conflict, the governance design is usually what is wrong.
A worked family succession
Consider a founder holding all the shares in a Dutch holding company, which holds an operating subsidiary and two foreign participations, with three adult children, one of whom works in the business. The objective is to move economic value during the founder’s lifetime while retaining coherent control, and to avoid a general meeting of three siblings with veto power over each other.
A workable architecture certifies the holding shares into a STAK. The founder transfers receipts to the three children in equal economic proportions, so the value moves while the votes do not. The founder chairs the foundation board initially, with a defined mechanism for its composition thereafter: one seat filled by the branch active in the business, one by an independent professional appointed on stated criteria, one by resolution of the receipt holders, with a casting arrangement that does not depend on any one person surviving. The terms of administration specify the matters on which receipt holders must be consulted, typically sale of the enterprise, material dilution and amendment of the terms themselves.
At company level, the holding board is reconstituted so that decisions on the participations are genuinely taken by it. That is where the tax analysis attaches. Dividends and gains on qualifying participations fall within the participation exemption of article 13 of the Wet op de vennootschapsbelasting 1969, which is mandatory rather than elective, and symmetric, so losses on those participations are not deductible either, as set out in our discussion of the participation exemption. That symmetry has an express exception that matters to a holding company: under article 13d the exemption does not apply to a loss on a participation that emerges after the entity has been dissolved, so the liquidation loss is deductible on the terms that article sets, among them that it is not taken into account above €5,000,000 unless the conditions it lays down are met. Distributions out of the holding remain subject to dividend withholding tax at the general rate of 15% under article 5 of the Wet op de dividendbelasting 1965, reduced where a treaty so provides and lifted entirely by article 4 lid 2 of that act where the recipient is established in a member state of the European Union or the European Economic Area, in a state with which the Netherlands has a treaty against double taxation, or in a public body within the Kingdom for which the Netherlands has made such an arrangement, in either of those two cases one that provides for dividends, and holds an interest to which the participation exemption, or the participation credit of article 13aa of the corporate income tax act, would apply if the recipient were Dutch resident.
That relief is not unconditional, and the conditions are governance conditions. It applies only to a recipient who shows that he is the beneficial owner of the income, and among the cases in which article 4 lid 3 withholds it is the one that matters here: an interest held with the avoidance of tax at another person’s level as its main purpose or one of its main purposes, within an artificial arrangement, meaning one not put in place for valid commercial reasons reflecting economic reality. The abuse test and the ruling policy look at the same governance facts.
The design does not remove conflict. It gives conflict a forum, a decision rule and an exit, which is the most a structure can contribute.
Reviewing the design before it is tested
Governance documents age badly because the facts underneath them move: directors relocate, families expand, thresholds are crossed. A periodic review should ask a few unsentimental questions. Does the board actually decide the matters attributed to it, and can that be evidenced. Are the reserved matters consistent with that answer. Does the STAK board have a working succession mechanism. Have the large company criteria come into view, and how long has the filing been registered.
None of this reduces the corporate income tax burden, which under article 22 of the Wet op de vennootschapsbelasting 1969 is 19% on the first €200,000 of the taxable amount and 25.8% above it. It determines something more consequential: whether the structure behaves as intended when it is finally tested.
Montclare structures and operates Dutch and cross-border holding platforms for international groups. Our services are set out on our services page.
This article is informational and does not constitute tax advice. Each engagement is subject to scope and applicable regulation.