All about: Section 403 and the possibilities of group exemption

10/07/19

Generally all bv’s and nv’s that are based in the Netherlands are subject to the rules with regard to the financial statements as meant in the Dutch Civil Code (Burgerlijk Wetboek, BW, title 9). These rules merely apply to the preparation, audit and filing of the financial statements. However, under certain conditions group entities can use the so-called group exemption.

This facility of article 403 BW means that a Dutch legal entity (so: the group entity) under certain conditions is exempt from the presentation requirements of BW 2, title 9. Yet, they still need to prepare (company) financial statements for which certain minimum requirements apply. Furthermore, the entity is exempt from a mandatory audit; also an exemption applies with regard to filing at the Chamber of Commerce.

Conditions

In order to use the facility certain conditions needs to be met, which partly relate to the parent company. This is the head of the group in which the information of the Dutch bv or nv – so the group entity that uses the facilities of article 403 – are consolidated. Two important conditions are:

the parent entity must declare in writing that they are jointly and severally liable for the debts resulting from legal acts of their group company (the Dutch bv);
the parent must prepare their consolidated financial statements in line with the reporting system that complies with European Union rules (i.e. a GAAP of one of the EU Member States) or IFRS as accepted and approved by the European Union.

Advantages and disadvantages

The question of whether it is advisable to use the exemption in a specific case is not easy to answer. The conditions for the exemption can also be disadvantageous, especially because of the issue of a joint and several guarantee by the parent company. The advantages and disadvantages must be carefully considered against each other.

Due to the developments in the United Kingdom (brexit), there is very likely an issue for Dutch subsidiaries with a parent company (group head) based in the UK. Because the UK will no longer be a member state after brexit, the exemption of article 403 can no longer be used.

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