The Dutch tax authority (Belastingdienst) has notified various collateralised loan obligation issuing vehicles (CLO SPVs) that it has changed its view that collateral management services and collateral administration services (CLO Services) are exempt from Dutch VAT.

This means that going forward the Dutch tax authority expects Dutch VAT to be charged on these services. This VAT represents an absolute cost to these structures as it cannot be recovered.

CLO SPVs, their collateral managers, their other service providers and investors urgently need to evaluate their position.


CLO SPVs buy in CLO Services from collateral managers and collateral administrators (Service Providers) so that they are able to function. These are critical services for the management of their offering and typically represent the more significant expenses of these vehicles.  

If any VAT is charged on the CLO Services, it would generally become an absolute cost to the structure and has the potential to impact the available cash to service the structure or it would impact the return to the Service Providers (e.g. by reducing fees payable). If the structure bears this cost, this will ultimately hit the equity investors.

Until last week, the Dutch tax authority regarded CLO Services as being exempt from Dutch VAT. This meant that there was no Dutch VAT cost to these structures.

Late last week, this position changed and the Dutch tax authority has announced to the market that CLO Services are, in its view, subject to Dutch VAT. Therefore, unless a CLO SPV challenges this position, Dutch VAT will now be charged on CLO Services and this will represent an absolute cost to these structures.


Traditionally, CLO SPVs have structured their affairs such that no VAT is charged on CLO Services and they have sought to establish themselves in jurisdictions where VAT is not charged on them.

Conceptually, the VAT rules across the EU are intended to be harmonised such that every member state of the EU (and the UK) should treat the CLO Services in the same way. However, unfortunately differences in treatment and interpretation exist throughout the EU. This creates uncertainty for the taxpayer.

Given the Dutch tax authority's latest positioning, we anticipate that its announcement will effectively result in no new CLO SPVs being established in the Netherlands given that other EU tax authorities consider that CLO Services are exempt from VAT; or, in other words, one would expect structures to shift to alternative jurisdictions which maintain a favourable interpretation.

Whilst rumours have been circulating in the market that this was on the agenda of the Dutch tax authority for some time, the market was still taken by surprise by the announcement. The approach taken is slightly unusual given the competitiveness of different jurisdictions across the EU. This announcement may result in the "run-off" of the CLO industry in the Netherlands. It may also lead to a migration of some existing Dutch structures to other established jurisdictions.

Immediate next steps for these affected structures are to confirm their contractual position to establish where this risk lies within the structure. Generally speaking, the cost of this would usually sit on the CLO SPV rather than the Service Provider, although there may be some structures where the Service Provider bears this cost.

Furthermore, even if the CLO SPV bears this cost contractually, it may be the case that, in certain situations, the Service Providers may wish to bear a proportion of this cost themselves.

As for the wider ramifications of this, it serves to highlight again that, despite VAT being an EU tax which should be interpreted uniformly across the EU, the harmonisation of VAT is far from uniform.

Consequently, we anticipate that a number of CLO SPVs will challenge the position taken by the Dutch tax authority although, given the speed of litigation, this may take time to work through the system.

As for the grounds of legal challenge, the tax authorities throughout the EU have failed to keep up with the pace of the relevant VAT exemption in question. They are quite clearly several years behind the curve as is evidenced in this area by the litigation which the tax authorities continue to bring (including, most recently, the case of X BV which the Dutch tax authority lost in the European courts).

We do not expect this to be the end of the matter.

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