Applying the Dutch 403 exemption: think before you act!

What is the 403 statement? 

The Dutch "403 statement or exemption" is issued by a parent company to assure debts of its subsidiaries. It allows subsidiaries to avoid filing separate financial statements with the Chamber of Commerce, as their data is already consolidated in the parent company's statements. Conditions include: the parent holding at least 95% of shares, being based in the Netherlands or EU, and the subsidiary being part of the parent's consolidated financial statements. The parent assumes responsibility for subsidiary debts, providing financial assurance to stakeholders.

Carefully consider the requirements for the 403 exemption! 

If you intend to utilize the 403 exemption, carefully verify whether you meet the requirements. Failure to do so may lead to unpleasant surprises in the future! 

Your entity must fulfill each of the following conditions: 

1. The parent company must have provided a written joint and several liability statement for the debts of the subsidiary, and this declaration must be filed with the Chamber of Commerce. 
2. The consolidated financial statements of the parent company must be prepared in accordance with the regulations of the European Union or IFRS as accepted and approved by the European Union. 
3. The subsidiary must annually file a consent statement with the Chamber of Commerce, in which all shareholders declare their agreement with the deviation from the financial statement requirements. 

What are the common issues that arise? 

Does the benefit of a 403 exemption outweigh the risks of not meeting all three requirements? It may seem relatively simple, yet we frequently observe that things do not go as smoothly or are more challenging than anticipated. For example, when it turns out that: 

1. The consent statements are not filed annually or are not submitted on time (after the end of the financial year and before the approval of the financial statements). 
2. The consolidated financial statements are not filed or not filed on time (within twelve months or ten months in the case of automatic approval). 
3. The subsidiary fails to prepare a required limited balance sheet. 
4. The parent company "forgets" to issue a 403 statement for a subsidiary acquired at a later stage. 

What if you don't meet the requirements after all? 

In that scenario, if the subsidiary cannot use the 403 exemption, it must follow the regular financial statement requirement. If the subsidiary fails to file a complete financial statement on time, the directors could be held liable for not fulfilling the accounting obligation. In case of bankruptcy, the burden of proof may shift, and the directors might be held accountable for the entire deficit of the company's assets due to manifestly improper performance of duties. Furthermore, the parent company retains joint and several liability because of the 403 statement issued, resulting in a dual risk situation! 

Pros and cons of the 403 exemption summarized 

The 403 exemption offers several advantages, such as: 

• Reduced administrative burdens; 
• Cost savings; 
• Protection of sensitive financial data from competitors, particularly relevant in scenarios where counterparties demand confidentiality, such as in public tenders. 

However, there are also potential disadvantages to consider: 

• The parent company bears "unlimited" liability for the subsidiary's debts, which can pose financial risks. 
• Failure to meet all conditions in a timely manner may lead to liability risks for both the subsidiary and its management. 
• In smaller groups, the benefits in terms of cost savings and burden reduction may be minimal, as subsidiary companies still need to prepare limited financial statements and provide additional consent statements. 

Carefully consider revoking the 403 statement when selling a subsidiary! 

To ensure compliance, it is crucial to properly revoke the 403 statement when selling a subsidiary. Unfortunately, this process is not consistently carried out correctly in all cases, leading to the continued liability for the subsidiary. 

Perhaps a group guarantee is a better alternative to the 403 exemption? 

When your counterparts request a 403 statement for contracts, carefully assess if a group guarantee would suffice. A group guarantee involves the parent company providing a specific guarantee for that counterparty and/or contract. While a 403 statement offers security to all creditors for all debts, a group guarantee is narrower in scope and can often be a more favorable alternative.

Seek expert advice 

Yes, the 403 exemption can be advantageous at times. However, it is prudent to consult with experts, seek for advice and explore alternative options that may be more suitable for your specific situation. Think before you act. And in any case: call our Legal team first! 

Contact one of our specialists