Brexit: end of Dutch annual account exemptions

End of Dutch annual account exemptions

A Dutch subsidiary company can make use of an exemption from the obligation to prepare, have audited and publish its annual accounts in accordance with the provisions of the Dutch Civil Code (called a group exemption). One of the conditions for a group exemption is that the data of the subsidiary company is consolidated in the annual accounts of another subsidiary, to which the EU Accounts Directive or the IAS Regulation applies (Directive 2013/34/EU and Regulation (EC) No 1606/2002).

After Brexit (or at least after the Transition Period ends on 31 December 2020), this requirement can no longer be met because the EU Accounts Directive and the IAS Regulation no longer apply to the consolidating UK legal entity. This does not mean that consolidation is no longer permitted, but that the Dutch subsidiary company can no longer invoke the group exemption and therefore has to prepare its own annual accounts.

Another condition for being allowed to use the group exemption in the Netherlands is that the consolidating subsidiary company declares in writing that it is jointly and severally liable for the debts of the consolidated subsidiary (known as a 403 declaration – in accordance with Art. 2:403 paragraph 1 sub f of the Dutch Civil Code). This declaration must be filed with the trade register and applies to all debts arising after such filing, until the declaration is withdrawn. If the exemption may no longer be used due to Brexit, there is no reason for further joint and several liability to arise and it is therefore important to withdraw this declaration as soon as possible.

Consolidation exemption no longer applies

Under Dutch law, a legal entity that controls or manages a group or part of a group is required to consolidate its data in its own financial statements. A Dutch intermediate holding company in an international group may be exempt from this requirement if the consolidated financial statements of the company heading the group are prepared in accordance with the requirements of the EU Annual Accounts Directive or in an equivalent manner. For the time being, it is assumed that after Brexit the financial statements of an English parent company will not meet these criteria and that the exemption can therefore no longer be invoked. As a result, a Dutch intermediate holding company in a group with an English parent company will, in principle, have to prepare its own consolidated annual accounts for its own part of the group.

Annual accounts according to English accounting standards

Under Dutch law, annual accounts must provide sufficient insight into the capital and results, and the solvency and liquidity of the B.V. (Article 2:362 paragraph 1 of the Dutch Civil Code). If the international structure of the group justifies this, and the accounting standards of another EU member state (also) provide such insight, Dutch law then allows a Dutch legal entity to prepare the financial statements according to the accounting standards of that other EU member state. Thus, a Dutch BV could be allowed to prepare its annual accounts according to English accounting standards.

Again, after Brexit and the end of the Transition Period this option will no longer exist. This means that B.V.s that made use of this option have to prepare annual accounts for the financial year starting 1 January 2021 or later, in accordance with Dutch accounting standards or those of another relevant EU member state..

Recommendations

The amended rules apply to financial years starting on 1 January 2021 or later. The amended regime will have to be taken into account when drawing up annual accounts for an English/Dutch group and in the event of a compulsory audit at Dutch level, as well as in the amended decision-making process, for example.
The most urgent action required is to withdraw any filed 403 declaration, where necessary.