"In the present time of globalisation and global competition, also in the governance arena, the Netherlands offers a nice system: tailor-made governance structures, regulation where neces-sary, monitoring by the Amsterdam Court of Appeal’s Enterprise Chamber and the right of investigation." That is what Christiaan de Brauw said during the conference 'The Netherlands, the Delaware of Europe?' that took place in Nijmegen on 20 November.
That title refers to the US State of Delaware, which is the favourite state of incorporation for US listed companies: 64 percent of the US Fortune 500 publicly traded companies listed on one of the New York stock exchanges were incorporated in Delaware. Christiaan said that because the Netherlands shares many similarities with Delaware in terms of flexible and modern governance and proper regulation by specialised courts, the Nether-lands has also been able to build track record as a place of residence. "Consider CNH Indus-trial, Fiat Chrysler and Ferrari, for example, or Mylan."
Christiaan pointed out the reasons why foreign companies are based here "The need for a new, neutral jurisdiction that arises in the case of a strategic transaction, for example between two publicly traded companies. Or when companies want to create a new group or subgroup as a spin-off from an existing enterprise in a neutral or attractive new jurisdiction, as was the case with Airbus after it combined its German, French and Spanish activities, and recently Ferrari. Dissatisfaction with the existing jurisdiction can also be a reason, such as in the case of inversion transactions, for example, where publicly traded US companies leave the country as part of a large strategic transaction on account of its corporate income tax rate of 38 percent, which is considered high from an international perspective."
Sense of unease among presidential candidates
Christiaan told NRC Handelsblad last week that the fact that many US pharmaceutical com-panies have taken this route is causing turmoil in the US. Presidential candidates Hillary Clinton and Donald Trump have expressed their disapproval of Pfizer´s plans to acquire Al-lergan, the Irish Botox maker, and to move its headquarters to Ireland. That is understandable since according to the Financial Times that move would cause the treasury to lose out on USD 21 billion in taxes. Christiaan also explained in NRC that these relocations are under-standable from the companies´ perspectives: "Enterprises are competing on a global level, so if you are paying 35 percent in corporate income tax whereas your competitor is paying 12.5 percent , it is hard not to follow suit. Furthermore, enterprises that pay lower tax rates have more money to offer when bidding on the same acquisition candidates."
More than merely financial reasons
Christiaan also said that companies no longer come to the Netherlands precisely because of tax reasons. Corporate immigrants now often opt for the United Kingdom as their residence for tax purposes. "Tailored governance structures and innovation, the reliability of our system, as well as regulatory and monitoring possibilities in particular are of great importance. Lastly, protective measures may be an important consideration, such as a ‘beschermingsstichting’ (preferred shares foundation), or as the Americans pronounce it after the case of the Mylan 'stichting', the 'stikting' or 'stitsjing'. The protection options are unique in the world and offer boards of directors and supervisory boards room from a legal perspective to create value in the long term, especially compared with other regimes where boards may not or cannot oppose matters, such as in England and Ireland. In Delaware governance has also changed under pressure from proxy advisors such as ISS and institutional investors and hedge funds. Whereas in the past boards in Delaware were able to carry out long-term strategies aimed at creating value, boards in Delaware must now hold re-election campaigns every year and there are activist hedge funds that often act in wolf packs and push for short-term shareholder return."
Click here to read the entire NRC article 'Maker of Viagra flees from IRS' (available in Dutch).