The Dutch Minister of Social Affairs and Employment has responded to the request from the business community and the unions to expand the application of the Temporary Emergency Bridging Measure for Sustained Employment (Noodmaatregel Overbrugging Werkgelegenheid “NOW”), as described in our alert from April 8, 2020, in respect of group relations. In some groups, operating entities have come to a complete or partial standstill due to the Corona crisis, while other operating entities within the group are generating sufficient turnover or even making a profit. In that case, the group as a whole does not meet the requirements of the twenty percent turnover loss.
With this expansion of the NOW measure, operating entities negatively affected by the Corona crisis can apply for the NOW subsidy without the calculation of the turnover for the group as a whole.
Requirements operating entity
Starting May 5, 2020, it will be possible for a single operating entity, which is part of a group that as a whole does not qualify for the NOW subsidy, to apply for the NOW subsidy on its own (the “Operating Entity”). This application is however subject to the following requirements:
- The head of the group must declare, prior to the application, that over the financial year 2020 until the date of the meeting in 2021 at which the financial statements over 2020 are adopted, (i) no distribution(s) of dividends to shareholders of the group shall be made (ii) no bonuses to the Board of Directors and management of the head of the group or the Operating Entity will be paid and (iii) there will be no acquisition of own shares by the entities within the group.
- The Operating Entity reached an agreement with the trade union to preserve employment.
- There is no personnel entity within the group.
Our understanding is that the limitation of distribution of dividends, as mentioned above under 1., only applies to the distributions made by the head of the group to its shareholders and/or third parties outside the group. Distributions within the group are allowed under the NOW.
Prevent strategic behavior within the group
Apart from these requirements that the Operating Entity and the group must meet, there are some new control safeguards to prevent strategic behavior within the group. These will be monitored by an accountant.
- The other operating entities within the group are not allowed to fulfil any operations or contracts at the expense of the Operating Entity, who would normally carry out this operation and which contract is non-standard for the other operating entity.
- If employees of the Operating Entity undertake activities with another entity during the subsidy period, the turnover loss of the Operating Entity must be reduced by this resulting (theoretical) turnover this employee will generate when the subsidy is determined. This prevents that the wage costs, which are covered by the other operating entities through this turnover, are eligible for subsidy by shifting personnel.
- The transfer pricing system, as used in the financial statements for 2019 or the most recently adopted financial statements, is leading for the measurement period 2020 and may not be adjusted.
- Movements in stock of finished products will be added to the turnover. This limits the risk of shifting the stock within the group.
Please be informed that this expansion does not change the main effect of the NOW and that these requirements are an addition to the already existing requirements for the subsidy. To make use of this extension, a new subsidy application must be submitted. Applications in this respect made before this extension takes effect, will not be granted. For more information on the NOW subsidy, we kindly refer you to our blog from April 8, 2020.
If you have any further questions, please do not hesitate to contact us.