Dividend payments by foreign parent companies whilst their Dutch subsidiaries rely on corona support measures such as the Temporary Emergency Bridging measure (‘NOW’) raised eyebrows in national media. The applicability of the restriction to distribute dividends depends on the NOW application itself. In this article, we would like to provide clarity on the dividend restriction under the NOW scheme.
NOW scheme
When your company employs staff and suffers a substantial turnover loss, your company may receive compensation for the wage costs under the NOW scheme. The NOW scheme enables companies to pay their employees with permanent and temporary contracts. To be eligible for the NOW subsidy, your company should suffer a turnover loss of at least 20%.
Under the primary rule, the turnover loss is calculated on group level (total turnover loss). However, practice showed that a group subsidiary might face 20% or more turnover loss, while the group turnover loss is less than 20%. Consequently, such companies were not eligible for a NOW subsidy. An exception has been implemented (secondary rule) for operating companies suffering a turnover loss of 20% while the group turnover loss is less than 20%: the turnover loss is determined on a stand-alone basis.
The restriction to pay dividends
The restriction sees to the payment of bonusses and/or dividend and the purchase of the company’s own shares. It should be noted that the dividend restriction is not a general condition in the NOW regulation. The applicability of the restriction depends on the specific NOW scheme (1.0, 2.0, …) as well as the NOW-application itself.
NOW 1.0
Under NOW 1 (covering March, April and May) the restriction was not in place for the primary rule. The restriction was limited to NOW-applications under the secondary rule. The restriction applies to the entire business group: no group entities may pay out dividends.
NOW 2.0
The restriction had a broader scope under NOW 2: it applies both for the application under the primary rule as well as the secondary rule. Under the primary rule, only the applicant of the NOW subsidy faces the dividend restriction. Furthermore, the restriction only applies when the subsidy amounts to €100,000 (advance) or €125,000 (final determination). Under the secondary rule, the restriction applies to the entire business group.
NOW 3.0
The restriction under NOW 3.0 is the same under NOW 2.0: only the applicant of the NOW subsidy is confronted with the dividend restriction when the subsidy amounts to €100,000 (advance) or €125,000 (final determination). Again, under the secondary rule, the restriction applies to the entire business group. For tranche 3, the restriction sees to financial year 2020 while tranche 4 and tranche 5 see to financial year 2021.
Impact
If your company receives subsidy under the NOW scheme, dividend payments should be assessed with care. Please reach out to us to have a closer look at your company’s situation.
