Financial Statements and Consolidation: Requirements and Exemptions for Dutch Companies, Lecture notes of Accounting

Download Financial Statements and Consolidation: Requirements and Exemptions for Dutch Companies and more Lecture notes Accounting in PDF only on Docsity! The Annual Accounts in the Netherlands A guide to Title 9 of the Netherlands Civil Code 2018 Edition 2 5 7. Decree on financial statements formats 21 7.1 The Decree 21 7.2 Scope 21 7.3 Balance sheet models 21 7.4 Profit and loss account models 21 8. Management board’s report 22 8.1 Preparation 22 8.2 Publication 22 8.3 Language 22 8.4 Requirements concerning the information to be provided 22 8.5 Listed companies 22 8.6 Disclosure of unbalanced board seat allocation between women and men 23 8.7 Exemptions 23 8.8 Corporate Social Responsibility (CSR) 23 9. Other information 24 9.1 Other information based on article 392 NCC 24 9.2 “Country-by-Country reporting” 24 Appendix 1 - Glossary of terms 25 Appendix 2 - Prescribed formats for the balance sheet and the profit and loss account 29 Model A Balance sheet of a large or medium-sized company 29 Model B Balance sheet of a large or medium-sized company 31 Model C Balance sheet of a small company 33 Model D Balance sheet of a small company 34 Model E Profit and loss account of a large or medium-sized company (expenses presented by nature) 35 Model F Profit and loss account of a large or medium-sized company (expenses presented by function) 36 Model I Profit and loss account of a small company (expenses presented by nature) 37 Model J Profit and loss account of a small company (expenses presented by function) 38 Other models 38 Appendix 3 - Schedule C: Deadline for preparation, adoption, general publication and filing of annual accounts of N.V. or B.V. which securities are listed on a regulated market in the EU/EEA 39 6 The Annual Accounts in the Netherlands 1. Executive summary The legal requirements relating to the annual accounts are included in Title 9 Book 2 (hereinafter: Title 9) of the Netherlands Civil Code (NCC). Title 9 is applicable to the annual accounts of certain types of legal entities, such as the public limited liability company (N.V.) and the private limited liability company (B.V.). The Dutch Accounting Standards Board (DASB) issues authoritative and interpretative accounting standards. The NCC and Dutch Accounting Standards (DASs) comprise the Netherlands Generally Accepted Accounting Principles (NL GAAP). Companies are well advised to comply with DASs and are furthermore recommended to use the DASs for reference when interpretation of Title 9 of the Netherlands Civil Code is required. However, DASs do not formally have the status of law. Title 9 offers legal entities the possibility to prepare both the company-only financial statements and the consolidated financial statements in accordance with International Financial Reporting Standards as endorsed by the EU (IFRS-EU). Reference is made to paragraph 2.5. The annual accounts consist of the management board’s report, the financial statements and the other information section. The financial statements consist of the company-only financial statements1 consisting of the balance sheet, the profit and loss account and the notes, and the consolidated financial statements (if applicable). The financial statements must provide an ‘insight’ such that a reasonable judgement can be formed regarding the financial position and results of the company, and, to the extent that the nature of the financial statements permits, its solvency and liquidity. Depending on whether a group relationship exists, consolidated financial statements shall be prepared. Certain exemptions to consolidation may apply. The management board of a company is required to prepare the annual accounts within certain time limits. The financial statements of an N.V. or a B.V. are adopted by the general meeting. A company must publish its annual accounts within certain time limits following the adoption of its financial statements. Companies are classified by means of certain size criteria into four categories: large, medium-sized, small and micro companies. Micro, small and medium-sized companies may take advantage of certain exemptions, if they do not prepare financial statements in accordance with IFRS-EU. A distinction can be made between exemptions relating to preparation of the financial statements, and those relating to publication of the financial statements. Micro and small companies have no legal audit requirement if they apply NL GAAP in the company-only financial statements. The financial statements of medium-sized and large companies must be audited (unless the group exemption in article 403 NCC is applied). The Decree on financial statements formats lays down certain formats for the balance sheet and profit and loss account which are applicable to the companies defined in the Decree (with the exception of micro companies). The formats are included in Appendix 2 of this publication for the reader’s convenience. The NCC sets out a number of requirements for the management board’s report of large and medium-sized companies. 1 Also referred to as ‘company financial statements’. The Annual Accounts in the Netherlands 7 2. Introduction 2.1 Annual accounts The legal requirements relating to the annual accounts are included in Title 9 of the Netherlands Civil Code (NCC), based on the EU Accounting Directive 2013/34/EU. The annual accounts comprise: • management board’s report • financial statements, consisting of: – balance sheet – profit and loss account – notes • other information. Consolidated financial statements, when required, are part of the annual accounts. A cash flow statement2 is required for medium-sized and large companies based on DAS 360.104. The cash flow statement is however not mentioned in the NCC as a primary financial statement. DAS 360.101 states that the cash flow statement is part of the financial statements. Given the definition of financial statements in article 361-1 NCC, it could be argued that the cash flow statement forms part of the notes to the financial statements. However, in practice, medium-sized and large companies present the cash flow statement together with the balance sheet and profit and loss account, as a third primary financial statement. A cash flow statement is not required if the capital of a company is fully provided by another entity3 which prepares an equivalent cash flow statement as part of its consolidated financial statements. A company which applies this exemption shall disclose where such consolidated financial statements can be obtained (DAS 360.104). 2.2 Scope of Title 9 Title 9 is applicable to the annual accounts of the following legal entities (article 360 NCC): • public limited liability company (N.V.); • private limited liability company (B.V.); • cooperative; • mutual guarantee association; • limited partnership (C.V.) or general partnership (V.O.F.) where all partners who are fully liable to creditors for debts, are capital companies incorporated under foreign law; and • foundations or associations holding on their own, one or more businesses (so-called commercial foundation or association) with net turnover of at least EUR 6 million. In this guide, all these types of entities are referred to as ‘companies’. 2.3 Impact of Title 9 Title 9 contains a considerable number of legal requirements relating to the management board’s report and the financial statements (including audit and publication requirements), as well as requirements on valuation. Because these requirements vary depending on the size of the company concerned, company size is discussed initially in Chapter 3. Publication and audit requirements are discussed in Chapter 4 and 5 respectively. Disclosure requirements are dealt with throughout this publication on a high-level basis, mainly in Chapter 6. The prescribed models for disclosure and publication of the balance sheet and the profit and loss account are set out in Appendix 2 and explained in Chapter 7. The management board’s report, the items to be included in the other information section are dealt with in Chapters 8 and 9 of this publication. 2 Reference is made to the glossary of terms in appendix 1. 3 Either directly or indirectly 10 The Annual Accounts in the Netherlands 3. Company size 3.1 Criteria Companies are classified by size using three criteria (articles 395a, 396, 397 and 398 NCC)7: • total assets as recorded in the balance sheet; • net turnover; • average number of employees. For a parent company, the value of total assets and net turnover for this purpose are its own (stand-alone) figures plus those of its group companies (i.e. on a consolidated basis). The average number of employees includes the employees of group companies. This does not apply if the company applies article 408 NCC, in which case the size criteria are determined on a stand-alone (unconsolidated) basis. Article 408 NCC is discussed in Chapter 6 ‘Financial statements’, paragraph 6.2. The company’s assets for this purpose must be determined on a historical cost basis. 3.2 Categories Companies are classified into four categories: • large; • medium-sized; • small; or • micro. 3.3 Classification chart For financial years starting on or after 1 January 2016, the following size criteria are applicable: Amounts in EUR Micro Small* Medium-sized ** Large Total assets*** ≤ 350 thousand ≤ 6 million ≤ 20 million > 20 million Net turnover ≤ 700 thousand ≤ 12 million ≤ 40 million > 40 million Average number of employees < 10 < 50 < 250 ≥ 250 * and not a micro company ** and not a micro or small company *** on a historical cost basis A company is classified in a particular category (micro, small, medium-sized or large) if it meets at least two of the three criteria for that category on two consecutive balance sheet dates. The size of the company calculated at the end of the first financial year is decisive for the classification of the first and second financial year. Please note that the quantitative size criteria may be subject to change (article 398-4 NCC). 7  As noted in Chapter 2, paragraph 2.5, a company which applies IFRS-EU using combination 4, cannot use the size exemptions of articles 395a, 396 and 397 NCC (article 362-9 NCC). Further exceptions apply to investment companies to which article 401-1 NCC applies and public interest entities based on article 398-7 NCC. Consequently, such companies are classified as large companies. A company which applies combination 3 prepares the company-only financial statements in accordance with Title 9 and can hence use the size exemptions as noted above. The Annual Accounts in the Netherlands 11 4. Preparation, adoption and publication of annual accounts 4.1 Introduction Article 10 of Book 2 of the NCC deals with general administrative requirements. The management board is required to maintain accounting records in order to determine the company’s financial position and its activities at any given point in time. It must archive its books, documentation and other data records for a period of seven years. Please note that paragraph 4.2 until paragraph 4.6 below relates to the requirements for non-listed companies. Please refer to paragraph 4.7 below for the special requirements for listed companies. 4.2 Preparation The management board is required to prepare the annual accounts within five months after the financial year-end for the N.V. and B.V. and six months for the cooperative, mutual guarantee association, commercial foundation and commercial association. The general meeting of members (for a commercial association, a cooperative or a mutual guarantee association), the body designated in the articles (for a commercial foundation) or the general meeting (for an N.V. or a B.V.) may extend the period for preparing the annual accounts for a maximum period of five months (for an N.V. or a B.V.) or a maximum period of four months (for a cooperative, mutual guarantee association or a commercial foundation or association). The maximum extended period for preparing the annual accounts is therefore ten months. 4.3 Signing An original set of financial statements must be dated and signed by the management board and, where applicable, the supervisory board. 4.4 Adoption The financial statements of an N.V. and a B.V. must be presented to and adopted by the general meeting. Simplified adoption requirements apply for B.V.’s of which all shareholders are also directors of the company. In that case, the signing of the financial statements by all management board members and (if applicable) supervisory board members qualifies as the formal adoption of those financial statements, if the following conditions have been met: • all other parties with a right to attend the general meeting (e.g. share certificate holders, pledge holders or parties entitled to a usufruct (‘vruchtgebruik’) have been given the opportunity to read the prepared financial statements); and • such parties have given their consent to such simplified adoption of the financial statements (article 210-5 NCC). Once adopted, the financial statements cannot be revoked. Should it subsequently be found that the financial statements are seriously deficient in providing the legally required insight, specific procedures (outlined in Chapter 6, ‘Financial statements’, paragraph 6.1) have to be followed (article 362-6 NCC). 4.5 When to publish A company must publish its annual accounts within eight days of adoption, in accordance with article 394-1 NCC. If the financial statements have not been adopted within two months following the maximum period for preparing the financial statements (five months for an N.V. and a B.V. and six months for a cooperative, mutual guarantee association, commercial foundation and association, or the extended maximum period of ten months after the end of the financial year), the management board must publish them without delay. In that case the financial statements must clearly disclose that they have not yet been adopted (article 394-2 NCC). The maximum period for publication is therefore twelve months (article 394-3 NCC). Non-compliance with article 394-3 NCC is an economic offence within the context of article 1 sub 4 Economic Offences Act (WED) and may, in case of bankruptcy of the company, trigger director liability for the company’s deficit. The maximum period for preparing and publishing the financial statements of listed N.V.’s and B.V.’s is four months after the financial year-end (article 5:25c-1 Wft). This maximum period may not be extended. 12 The Annual Accounts in the Netherlands 4.6 How to publish Publication is effectuated by filing a copy of the annual accounts with the office of the Trade Register at the Chamber of Commerce where the company is registered according to its articles of association. The date of adoption must be stated on the filed copy. In principle, the information to be published must be prepared in Dutch. If the original information was not prepared in Dutch, filing the information for publication in English, French or German is permitted (article 394-1 NCC).8 The management board’s report (refer to Chapter 8) and certain parts of the other information section (refer to Chapter 9) contained in the annual accounts of medium-sized and large companies do not have to be filed with the Trade Register at the Chamber of Commerce, provided the documents concerned are kept at the office of the company for public inspection and a copy thereof is obtainable upon request at no more than cost price. The company must register a notice of this procedure with the Trade Register at the Chamber of Commerce (article 394-4 NCC), which means that the management board report is (effectively) made publicly available (upon request). Medium-sized companies may however elect to apply an exemption to make publicly available certain sections of the other information section (article 397-7 NCC). Medium-sized companies need not include information on non-financial performance indicators in the management board’s report (article 397-8 NCC). Micro and small companies are not required to prepare the management board’s report in conformity with article 391 NCC nor to publish the management board’s report (article 395a-6/8 and article 396-7/8 NCC respectively). Reference is made to Chapter 8. 4.7 Special requirements for listed companies The requirements for preparation, adoption, general publication and filing of the annual accounts of listed companies are detailed in Appendix 3, Schedule C. As from 1 January 2020, all financial statements of listed companies need to be published in HTML-format. 4.8 What to prepare and what to publish Micro, small and medium-sized companies may take advantage of certain exemptions if they do not prepare financial statements in accordance with IFRS-EU. A distinction can be made between exemptions relating to preparation of the financial statements, and those relating to publication of the financial statements (articles 396 and 397 NCC). 8  The annual accounts including the management board’s report (refer to Chapter 8 of this publication) to be presented to the Works Council must always be prepared in Dutch (article 31a-2 WOR and article 391-1 NCC). The Annual Accounts in the Netherlands 15 Currency and language The items in the financial statements must be reported in euros. This rule may be departed from if reporting in a foreign currency is justified by the company’s activities or by the international character of the group to which the company belongs. Reporting in a foreign currency may apply to the financial statements as a whole, or only to the consolidated financial statements (article 362-7 NCC). The financial statements must be prepared in the Dutch language, unless the general meeting has resolved to use a different language (article 362-7 NCC). Breakdown of figures Setting-off assets against liabilities or income against expenditure in the financial statements is not permitted when these items are required to be shown as separate items by Title 9 (article 363-2 NCC). Combination of items is permitted only if the items taken together are of negligible significance with respect to the insight to be provided in the financial statements (article 363-3 NCC). Comparative figures and consistency For each item in the financial statements, the corresponding figure for the preceding financial year must be shown as far as possible. Where necessary and in the interest of comparability, that item must be adjusted and the change resulting from the adjustment must be disclosed (article 363-5 NCC). Decree on financial statements formats Article 363-6 NCC stipulates financial statements formats and further regulations, which are applicable to the companies defined therein. The Decree pertaining to financial statements formats is addressed in Chapter 7. 6.2 Valuation of participating interests in other entities Definitions Valuation of participating interests When an interest has the characteristics described in article 23c NCC, the legal entity or partnership concerned is considered to be a participating interest, regardless of the percentage of ownership. The valuation of participating interests is a complex matter. Participating interests must be accounted for using the net asset value method, if an investor has significant influence on those interests’ commercial and financial policy (article 389-1 NCC). Where the parent company, together with its subsidiaries, can exercise at least twenty per cent of the votes of the members or shareholders, there is a rebuttable presumption that significant influence exists (article 389-1 NCC). Deviation from the net asset value is allowed only if there are sound reasons and such justification is disclosed in the annual accounts (article 389-9 NCC). In these circumstances, the participating interests may be measured at historical cost price. It should be noted that it is not allowed to measure participating interests with significant influence at current value (article 10-3c BAW). In the absence of significant influence, a participating interest is measured at historical cost or at current value. The valuation rules set out in articles 384 and 389 NCC are summarised below. a. Valuation according to the net asset value method (389 NCC) Under this method, the book value of the investment when it is initially acquired is determined on the basis of the net asset value method10. Net asset value is the fair value of the individual assets and liabilities of the participating interest at initial recognition. This value is subsequently adjusted for the share in the result of the participating interest and dividends in accordance with the accounting principles of the investor. Reference is made to the legal reserves section in Chapter 6, paragraph 6.5 below, specifically the legal reserve for participating interests as per article 389-6 NCC. Goodwill Any goodwill resulting from the use of the net asset value method shall be capitalised as intangible fixed assets and subsequently amortised (article 389-7 NCC) and impaired if necessary. Impairments of goodwill cannot be reversed in the future (article 387-5 NCC). Goodwill must be amortised in accordance with their expected useful lives. In exceptional circumstances where such useful lives cannot be reliably estimated, goodwill is amortised over a maximum period of ten years. In such cases, the reason for the amortisation period shall be disclosed (article 386-3 NCC). 10  In specific cases, the book value of the investment when it is initially acquired is determined on the basis of ‘another first book value’. This value may be used only when the net asset value cannot be determined because insufficient information is available. Net asset value according to the participating interest’s own balance sheet or the cost of the shares acquired can be used as ‘another first book value’ (article 389-3 NCC). 16 The Annual Accounts in the Netherlands b. Valuation at historical cost Under this method, the investment is carried at acquisition cost, taking into account the impairment provisions. c. Valuation at current value Under this method, the investment shall be re-measured at current value each period end. If financial instruments such as participating interests without significant influence are measured at current value, then the fair value is used, unless the fair value is not reliably measurable (article 10 BAW). 6.3 Consolidated financial statements The financial data of subsidiaries and other companies as described below, as well as those of the parent company, must be included in the consolidated financial statements of the group. The consolidation requirement is contained in article 406 NCC. A distinction is made between the consolidation requirement for a group head (article 406-1 NCC) and consolidation requirement for an intermediate holding company (article 406-2 NCC). Article 407 and article 408 NCC provide certain consolidation exemptions, which are discussed on the following pages. Consolidation requirement for group head (406-1 NCC) A company that heads a group - alone or jointly with another group company - prepares consolidated financial statements that include the financial data of (article 406-1 NCC): • the group head (the parent company); • the subsidiaries in the group; • other group companies; and • other companies over which it has control or over which it performs the central management. If the financial data of the parent company has been included in the consolidated financial statements, an abridged profit and loss account of the parent company suffices, which discloses only the income from participating interests after taxation as a separate item. The adoption of this exemption must be disclosed in the notes to the consolidated financial statements (article 402 NCC). Article 402 does not apply to Public Interest Entities (OOBs) as referred to in article 398-7 NCC. Consolidation requirement for intermediate holding company (406-2 NCC) The consolidation requirement for intermediate holding companies is contained in article 406-2 NCC. Based on this article, the company to which paragraph 1 (consolidation requirement for group head) does not apply but that does have one or more subsidiaries or other companies in its group over which it has control or for which it performs the central management, must prepare consolidated financial statements. This provision implies that an intermediate holding company with at least one subsidiary in its part of the group is obliged to consolidate that part of that sub-group. An intermediate holding company with at least one other company in its part of the group over which it has control or for which it performs central management is also obliged to consolidate. The law provides for an exemption from consolidation for such intermediate holding companies, if certain conditions are met (article 408 NCC, which is discussed later). Consolidation exemptions (407 NCC) The following companies do not have to be consolidated (article 407-1 NCC): • group companies whose total significance is immaterial to the group as a whole; • group companies whose financial data can only be obtained at disproportional cost or with great delay; • group companies which are only held for disposal. Furthermore, consolidation is not required for micro and small groups (applying the limits of micro companies and small companies respectively) under the following conditions (article 407-2 NCC): • if none of the companies to be included into the consolidation is an entity as referred to in article 398-7 NCC; • if no notices of objections have been lodged against the fact that a consolidation will not be carried out, within six months after the commencement of the financial year, by the general meeting. . The Annual Accounts in the Netherlands 17 Exemptions for group companies (403 NCC) A group company is exempt from the usual disclosure, publication and audit requirements relating to its financial statements if it meets all of the following conditions (article 403 NCC): a. the balance sheet in any event states the total amount of the fixed assets as well as the current assets and the amount of shareholders’ equity, provisions and liabilities, and the profit and loss account in any event mentions the result from normal business operations and the balance of the other income and expenses, all after taxation; b. the members or shareholders have stated in writing, after the start of the financial year and prior to the adoption of the financial statements, to agree with a derogation from these requirements; c. the financial data of the legal person is consolidated by another legal person or partnership into its consolidated financial statements to which, pursuant to the applicable law, the Regulation of the European Parliament and the Council regarding the application of international financial reporting standards, Directive 2013/34/EU or the applicable Directive for banks and other financial institutions or insurance companies; d. the consolidated financial statements, as far as these are not prepared or translated into Dutch, are prepared or translated into French, German or English; e. the auditor’s report and management board’s report are prepared or translated into the same language as the consolidated financial statements; f. the legal entity or partnership referred to under (c) has stated in writing that it assumes joint and several liability for obligations arising from juridical acts of the legal entity; and g. the statements referred to under (b) and (f) have been filed with the Trade Register at the Chamber of Commerce where the legal person is registered as well as, annually within six months after the balance sheet date or within one month after a lawfully made publication, the documents or translations listed under (d) and (e), or a reference to the Trade Office of the Chamber of Commerce where they are filed. For banks, specific conditions apply. Article 403 does not apply to Public Interest Entities (OOBs) as referred to in article 398-7 NCC. As stated above under item (a), group companies meeting the above conditions must prepare only an abridged balance sheet and profit and loss account. The abridged profit and loss account should show: • net profit or loss from ordinary operations (after taxation); • the balance of other income and charges (after taxation). These abridged financial statements must be adopted by the general meeting. No audit and publication of such financial statements are required. Consolidation exemption for intermediate holding companies (408 NCC) The exemption of article 408 NCC implies that an intermediate holding company is not required to prepare consolidated financial statements if the financial data that the intermediate holding company should consolidate has been integrally included in the consolidated financial statements of a larger group. Conditional to applying this exemption is that the consolidated financial statements (which include the data of the intermediate holding company) and the management board’s report are either prepared in accordance with the provisions of Directive 2013/34/EU or according to equivalent provisions. The IASB’s standards (i.e. IFRSs) can be regarded as equivalent provisions, while in practice financial statements that have been prepared according to, for example, United States GAAP are also considered equivalent. When applying non-EU principles, it will have to be established whether the view provided by the financial statements is not materially different (in a qualitative sense) from financial statements based on the provisions of Directive 2013/34/EU. This consolidation exemption can only be used if all conditions of article 408 NCC have been met. Therefore, the full text of this article is included below for reference. 20 The Annual Accounts in the Netherlands 6.6 Special regulations concerning the notes Title 9 requires some specific additional disclosures in addition to common disclosures relating to the primary financial statements. Please find below a discussion of some of these disclosures. Audit fee disclosure (382a NCC) In the financial statements of large companies, information about the audit fee must be disclosed. The objective of this disclosure is ‘to render the relationship between the statutory auditor or audit firm and the audited company more transparent’. The fees must be broken down into the following categories: audit of the financial statements, other audit engagements, tax advisory services and other non-audit services. Under certain conditions, disclosure of professional fees may be omitted in financial statements of companies that are consolidated. This exemption applies for companies whose financial data is included in consolidated financial statements, which under applicable law are subject to the Regulation of the European Parliament and the Council regarding application of international financial reporting standards (IFRS Regulation) or Directive 2013/34/EU of 26 June 2013. In order to apply this exemption, the consolidated financial statements referred to in the previous sentence, must disclose the audit fees (article 382a-3 NCC). This means, for instance, that group companies of non-EU enterprises cannot use this exemption. Remuneration of and loans, advance payments and guarantees to directors and supervisory directors In the financial statements of medium-sized and large companies, the aggregate amount for the remuneration of (former) members of the management board as well as the (former) members of the supervisory board must be disclosed, including amounts charged to subsidiaries or group companies included in the consolidated accounts. This disclosure cannot be omitted due to immateriality (neither quantitatively nor qualitatively). Reference is made to article 363-3 NCC, last sentence. Companies do not have to disclose this information where such information would make it possible to identify the remuneration of a single natural person. Based on Dutch legislative history, it can be concluded that ‘identifiability to a single natural person’ is only possible in a limited number of cases. The outstanding amount, amounts impaired and amounts waived of loans, advance payments and guarantees granted to directors and supervisory directors of the entity, issued by the entity, its subsidiaries and companies of which it consolidates data, shall be disclosed (article 383-2 NCC). It should be noted that, in contrast to the director remuneration (article 383-1 NCC), there is no exemption to this disclosure if these amounts can be identified to a single natural person. Remuneration of and loans, advance payments and guarantees to directors and supervisory directors of Open N.V.’s An Open N.V. (refer to the glossary of terms) shall disclose the remuneration of each individual director and of each individual supervisory director, divided into the following categories (article 383c NCC): • periodically paid remuneration; • remuneration payable in the future; • termination benefits; and • profit-sharing and bonus payments. This disclosure is required to the extent that these amounts were charged to the Open N.V. including its subsidiaries and group companies (article 383c-1 NCC) and apply equally to former directors and former supervisory directors as well (article 383c-2 NCC). Whether or not the amounts charged to the profit and loss account have already been paid is irrelevant. For Open N.V.’s, the disclosure on the outstanding amount, amounts impaired and amounts waived of loans, advance payments and guarantees granted to directors and supervisory directors of the entity, issued by the entity, its subsidiaries and companies of which it consolidates data as referred to above shall be made for each individual director and for each individual supervisory director (article 383e NCC). In addition, Open N.V.’s are required to disclose in aggregate certain information on the rights granted to directors, supervisory directors and employees of the entity to obtain shares in the capital of the entity and its subsidiaries (article 383d NCC). The Annual Accounts in the Netherlands 21 7. Decree on financial statements formats 7.1 The Decree Article 363-6 NCC lays down financial statements formats and further regulations, by general administrative order, which are applicable to the legal entities defined therein. This Decree on financial statements formats is called ‘Besluit Modellen Jaarrekening’ (BMJ). In the implementation of those models and regulations, the layout, naming and definitions of the items included therein must be adapted to the nature of the company’s business to the extent permitted by the BMJ. The BMJ has the status of law and full compliance is mandatory. Micro companies are exempted from the BMJ (article 1-3 BMJ). 7.2 Scope The BMJ is applicable to the N.V. and B.V. (article 1 BMJ) and partially applicable to banks (article 16 BMJ), insurance companies (article 16a BMJ) and investment companies (article 16b BMJ). The BMJ is not applicable to micro companies (article 1-3 BMJ) and companies which apply IFRS as endorsed by the EU (article 362-9 NCC) in their consolidated financial statements. However, for companies applying ‘combination 3’ (refer to Chapter 2, paragraph 2.5 above), the BMJ is applicable to the company-only financial statements. 7.3 Balance sheet models There are two general balance sheet models: a vertical format and a horizontal format. For the N.V. and B.V., large and medium-sized companies must use balance sheet model A (a vertical format) or model B (a horizontal format) (article 1-1 BMJ). Small companies may also use Model C (a vertical format) and model D (a horizontal format) (article 1-2 BMJ). Reference is made to Appendix 2 of this publication. Whether or not the allocation of the result for the year has been included, must be stated at the top of the balance sheet (article 11 BMJ). 7.4 Profit and loss account models There are two general profit and loss account models: by nature (article 2:377-3 NCC and by function (article 2:377-4 NCC), which are both in a vertical format. For the N.V. and B.V., large and medium-sized companies must use profit and loss account model E (by nature) or model F (by function) (article 1-1 BMJ). Small companies may also use Model I (by nature) or model J (by function) (article 1-2 BMJ). Reference is made to Appendix 2 of this publication. 22 The Annual Accounts in the Netherlands 8. Management board’s report 8.1 Preparation An N.V. (article 101-1 NCC) and B.V. (article 210-1 NCC) shall present the management board’s report for inspection by its shareholders annually and within five months after the financial year-end. In exceptional circumstances (e.g. loss of accounting records due to a natural disaster), this period may be extended by the general meeting for a maximum period of five months. 8.2 Publication The management board’s report is published simultaneously and in the same manner as the financial statements (article 394-4 NCC). Reference is made to Chapter 4, paragraph 4.5 of this publication. 8.3 Language A management board’s report that has to be published can be prepared in Dutch, French, German or English, but must always be in the same language as that of the published financial statements. 8.4 Requirements concerning the information to be provided Article 391 NCC sets out a number of requirements for the information to be provided in the management board’s report of large and medium-sized companies. The management board’s report must provide an overview of the state of affairs of the company at the balance sheet date and of the development of its business during the financial year. This overview has to be given of the company itself and of subsidiaries and group companies whose financial data is included in the company’s consolidated financial statements (article 391- 2 NCC). The management board’s report should also include (article 391-3 NCC): • a description of the significant risks and uncertainties to which the company is exposed; • expected business developments, especially regarding capital investments, financing, number of employees and the factors which determine turnover and profitability; • the effect of significant events that have occurred since the balance sheet date, in relation to the expected developments referred to above; • research and development activities; • subsequent events; • risk management with respect to financial instruments: objectives and policies; • exposure to price risk, credit risk, liquidity risk and cash flow risk; and • for Open N.V.’s: remuneration policy of statutory directors and those charged with governance, including implementation of that policy during the year. The management board’s report may not be inconsistent with the financial statements (article 391-4 NCC). Further specific guidance is included in DAS 400 ‘Management board’s report’. 8.5 Listed companies In addition to the requirements above, listed companies must include the following information in the management board’s report: • whether the company complies with the Dutch Corporate Governance Code (refer to below); • information regarding the capital structure, special voting rights and agreements which may have consequences in a public offering; and • certain non-financial information (only applicable for large listed companies with more than 500 employees, for financial years starting on or after 1 January 2017). Reference is further made to Chapter 8 ‘Management board’s report’, paragraph 8.6 for the disclosure requirement of unbalanced board seat allocation between women and men. It should be noted that companies in scope of the Financial Markets Supervision Act (Wft) must include a responsibility statement that the financial statements and the management board’s report give a true and fair view in accordance with article 5:25c Wft. The Annual Accounts in the Netherlands 25 Appendix 1 - Glossary of terms Annual accounts The financial statements, management board’s report and the other information section presented together. BAW (Besluit actuele waarde) Decree on current value. BMJ (Besluit modellen jaarrekening) Decree on financial statements formats. B.V. (Besloten vennootschap) A private limited liability company, which can only issue registered shares or registered trust certificates. In principle, shares and trust certificates of a B.V. are not freely transferable and they cannot be listed. Reference is further made to Chapter 11. Cash flow statement An overview of the cash and cash equivalents which became available during the reporting period including the use made of such resources. The cash flow statement does not have a legal basis in the NCC. However, a cash flow statement is required for medium-sized and large companies, based on DAS 360.104. Consolidated financial statements The financial statements which include the consolidated financial data of subsidiariesand which can also include, by consolidation, the financial data of group companies other than subsidiaries and the parent company. Cooperative Cooperative association. Credit institution A company that has been recorded in the register referred to in the Credit Institutions Supervision Act. A credit institution may be described as any corporate body, partnership or natural person which/who in the course of business accepts funds, whether or not in the form of saving accounts, repayable on demand or on terms of less than two years and which/who on its or his own account grants loans and invests funds. Current value The value that is based on current market prices or data which may be deemed relevant for the value at the date of measurement. C.V. (Commanditaire vennootschap) A limited partnership based on an agreement between two or more partners who may be individuals or corporations. A partnership is not a legal entity. The managing partners are individually liable for the partnership’s liabilities. The partners who contribute only capital are only liable for their capital contribution to the partnership. The purpose of the partnership is to make profit. The partners have to contribute either capital property, labour or goodwill. DASs (Richtlijnen voor de jaarverslaggeving) Dutch Accounting Standard(s). DASB (Raad voor de Jaarverslaggeving) Dutch Accounting Standards Board. ESMA European Securities and Markets Authority. Fair value The amount for which an asset can be exchanged or a liability settled between knowledgeable parties in an orderly transaction in which the parties are independent of each other. 26 The Annual Accounts in the Netherlands Financial year Usually, the financial year of Dutch incorporated bodies coincides with the calendar year, unless the articles of association state otherwise. Financial statements The balance sheet, profit and loss account and notes. They are a part of the annual accounts. Goodwill The excess of the amount paid for a company over the fair value of its net assets at the time of acquisition. Group An organisational and economic unit of legal entities and companies. Group company A legal entity or partnership which is part of a group. Historical cost The amount paid for an asset sometimes increased by certain additional direct and indirect costs. Insurance company A legal entity to which article 28 of the Insurance Supervision Act is applicable. Investment company A legal entity having as its sole object the investment of funds in such a way as to spread the risks involved and enable the members or shareholders to share in the proceeds. Large company A legal entity that, on a consolidated basis, meets at least two of the following three criteria on two consecutive balance sheet dates: • total assets more than EUR 20 million; • net turnover more than EUR 40 million; • average number of employees at least 250. Legal reserve A reserve required to be maintained by law. Legal reserves cannot be distributed to the shareholders. Some legal reserves can be converted into share capital. Listed N.V. or B.V. An N.V. or B.V. of which the securities (e.g. shares and/or bonds) are listed on a regulated market as meant in the Financial Markets Supervision Act (Wft). Management board’s report A report written by the management board which gives an overview of the state of affairs at the balance sheet date, the development of the business during the financial year and expected major developments in the near future. This report forms part of the annual accounts. Medium-sized company A legal entity that, on a consolidated basis, is not a micro and small company and that meets at least two of the following three criteria on two consecutive balance sheet dates: • total assets not more than EUR 20 million; • net turnover not more than EUR 40 million; • average number of employees less than 250. Micro company A legal entity that, on a consolidated basis, meets at least two of the following three criteria on two consecutive balance sheet dates: • total assets not more than EUR 350 thousand; • net turnover not more than EUR 700 thousand; • average number of employees less than 10. The Annual Accounts in the Netherlands 27 Net asset value Net asset value is the fair value of the individual assets and liabilities of the participating interest. This value is subsequently adjusted for the share in the result of the participating interest and dividends in accordance with the accounting principles of the investor. Net turnover Turnover after the deduction of rebates, discounts, VAT and similar taxes. NCC (Burgerlijk Wetboek) Netherlands Civil Code. NL GAAP Generally Accepted Accounting Standards in the Netherlands, comprising the Netherlands Civil code and the Dutch Accounting Standards published by the DASB. N.V. (Naamloze vennootschap) A public limited liability company, which can have both bearer and registered shares or trust certificates. Shares are negotiable and can be listed. Open N.V. An N.V. of which the shares are listed on a stock exchange. OOB (Organisatie van Openbaar Belang) Public Interest Entity: • an entity domiciled in the Netherlands of which the securities are traded on a regulated stock exchange as referred to in article 1:1 Wft; • a bank domiciled in the Netherlands as referred to in article 1:1 Wft for which a licence was granted in connection with that law; • a central credit institution domiciled in the Netherlands as referred to in article 1:1 Wft for which a licence was granted in connection with that law; • a reinsurer, life insurance company, or indemnity insurer domiciled in the Netherlands as referred to in article 1:1 Wft for which a licence was granted in connection with that law; or • a company, institution, or public body designated as such by governmental decree. Other information Information that management must include in a section accompanying the financial statements and the management board’s report. It is a part of the annual accounts. Participating interest Participating interest: • a company to which the participating company, or one or more of its subsidiaries, has provided capital for its own account, for the purpose of furthering its own business activities by establishing a long-term relationship (article 24c-1 NCC); • an interest in a partnership in which the participating company, or one of its subsidiaries, accepts full liability as a (general) partner for the partnership’s liabilities (article 24c-2a NCC); or • an interest in a partnership in which the participating company, or one of its subsidiaries, is a partner for the purpose of furthering its own business activities by establishing a long-term relationship (article 24c-2b NCC). Publication Filing a copy of the legally required information with the Trade Register at the Chamber of Commerce of the district in which the company has its statutory domicile or registered address according to its articles of association. For listed companies, the adopted financial statements need to be filed with the Netherlands Authority for the Financial Markets. Rebuttable legal presumption of a participating interest Where an interest, as defined by law, of at least twenty per cent of the issued capital is held in an entity, it will be presumed to be a participating interest of the investing company. This legal presumption may be rebutted depending on the individual facts and circumstances. 30 The Annual Accounts in the Netherlands II. Receivables 1. trade debtors ... 2. group companies ... 3. shareholders and participating interests ... 4. other receivables ... 5. called up share capital not yet paid in ... 6. prepayments and accrued income ... ... III. Securities ... IV. Cash ... V. Total current assets ... C. Short-term liabilities 1. convertible loans ... 2. other debenture loans and private loans ... 3. banks ... 4. payments received on account ... 5. trade creditors ... 6. bills of exchange and cheques payable ... 7. amounts due to group companies ... 8. amounts due to shareholders and participating interests ... 9. taxes and social security contributions ... 10. pension liabilities ... 11. other liabilities ... 12. accrued liabilities and deferred income ... ... D. Balance of current assets less short-term liabilities ... E. Total assets less short-term liabilities ... F. Long-term liabilities 1. convertible loans ... 2. other debenture loans and private loans ... 3. banks ... 4. payments received on account ... 5. trade creditors ... 6. bills of exchange and cheques payable ... 7. amounts due to group companies ... 8. amounts due to shareholders and participating interests ... 9. taxes and social security contributions ... 10. pension liabilities ... 11. other liabilities ... 12. accrued liabilities and deferred income ... ... G. Provisions 1. pensions ... 2. taxation ... 3. other provisions ... The Annual Accounts in the Netherlands 31 H. Shareholders’ equity I. Share capital paid up and called up ... II. Share premium (paid-in surplus) ... III. Revaluation reserves ... IV. Legal and statutory reserves 1. legal reserves ... 2. statutory reserves ... ... V. Other reserves ... VI. Unappropriated profits ... ... Assets A. Fixed assets I. Intangible fixed assets 1. incorporation and share issue expenses ... 2. development costs ... 3. concessions, licences and intellectual property rights ... 4. goodwill ... 5. prepayments on intangible fixed assets ... ... II. Tangible fixed assets 1. land and buildings ... 2. plant and machinery ... 3. other operating fixed assets ... 4. tangible fixed assets under construction and prepayments on tangible fixed assets ... 5. tangible fixed assets not used in operations ... ... Shareholders' equity, provisions and liabilities A. Shareholders’ equity I. Share capital paid up and called up ... II. Share premium (paid-in surplus) ... III. Revaluation reserves ... IV. Legal and statutory reserves 1. legal reserves ... 2. statutory reserves ... ... V. Other reserves ... VI. Unappropriated profits ... ... B. Provisions 1. pensions ... 2. taxation ... 3. other provisions ... ... Model B Balance sheet of a large or medium-sized company Please refer to Chapter 7 ‘Decree on financial statements formats’ above and the BMJ for further details. Balance sheet as at 32 The Annual Accounts in the Netherlands III. Financial fixed assets 1. participations in group companies ... 2. receivables from group companies ... 3. other participating interests ... 4. receivables from shareholders and participating interests ... 5. other securities ... 6. other receivables ... ... B. Current assets I. Inventories 1. raw materials and consumables ... 2. work in progress ... 3. finished goods and goods for resale ... 4. prepayments on inventories ... ... II. Receivables 1. trade debtors ... 2. group companies ... 3. shareholders and participating interests ... 4. other receivables ... 5. called up share capital not yet paid in ... 6. prepayments and accrued income ... ... III. Securities ... IV. Cash ... ... Total ... C. Long-term liabilities 1. convertible loans ... 2. other debenture loans and private loans ... 3. banks ... 4. payments received on account ... 5. trade creditors ... 6. bills of exchange and cheques payable ... 7. amounts due to group companies ... 8. amounts due to shareholders and participating interests ... 9. taxes and social security contributions ... 10. pension liabilities ... 11. other liabilities ... 12. accrued liabilities and deferred income ... ... D. Short-term liabilities 1. convertible loans ... 2. other debenture loans and private loans ... 3. banks ... 4. payments received on account ... 5. trade creditors ... 6. bills of exchange and cheques payable ... 7. amounts due to group companies ... 8. amounts due to shareholders and participating interests ... 9. taxes and social security contributions ... 10. pension liabilities ... 11. other liabilities ... 12. accrued liabilities and deferred income ... ... Total ... The Annual Accounts in the Netherlands 35 Model E Profit and loss account of a large or medium-sized company (expenses presented by nature) Please refer to Chapter 7 ‘Decree on financial statements formats’ above and the BMJ for further details. Profit and loss account for the year Net turnover ... change in inventories of finished goods and in work in progress ... capitalised production (on behalf of own business) ... other operating income ... Total operating income ... raw materials and consumables ... other external charges ... wages and salaries ... social security costs ... amortisation/depreciation of intangible and tangible fixed assets ... other changes in value of intangible and tangible fixed assets ... impairment of current assets ... other operating expenses ... Total operating expenses ... ... income from receivables included in fixed assets and from investments ... other interest income and similar income ... changes in value of receivables included in fixed assets and of investments ... interest expenses and similar charges ... Result before taxation ... taxation ... share in result of participations* ... Net result for the year ... * Only the income or loss from participating interests that are valued using the net asset value method (article 389-2 NCC) is included in this item. Income from participating interests valued differently must be shown separately as the first item of the financial income section, as ‘income from participating interests, not valued using the net asset value method’ (article 7-4 BMJ). 36 The Annual Accounts in the Netherlands Model F Profit and loss account of a large or medium-sized company (expenses presented by function) Please refer to Chapter 7 ‘Decree on financial statements formats’ above and the BMJ for further details. Profit and loss account for the year Net turnover ... cost of sales ... Gross turnover result/Gross margin ... selling expenses ... administrative expenses ... Total selling and administrative expenses ... Net turnover result/Net margin ... other operating income ... income from receivables included in fixed assets and from investments ... other interest income and similar income ... changes in value of receivables included in fixed assets and of investments ... interest expenses and similar charges ... Result before taxation ... taxation ... share in result of participations * ... Net result for the year ... * Only the income or loss from participating interests that are valued using the net asset value method (article 389-2 NCC) is included in this item. Income from participating interests valued differently must be shown separately as the first item of the financial income section, as ‘income from participating interests, not valued using the net asset value method’ (article 7-4 BMJ). The Annual Accounts in the Netherlands 37 Model I Profit and loss account of a small company (expenses presented by nature) Please refer to Chapter 7 ‘Decree on financial statements formats’ above and the BMJ for further details. Profit and loss account for the year Gross margin ... wages and salaries ... social security costs ... amortisation/depreciation of intangible and tangible fixed assets ... other changes in value of intangible and tangible fixed assets ... impairment of current assets ... other operating expenses ... Total operating expenses ... ... income from receivables included in fixed assets and from investments ... other interest income and similar income ... changes in value of receivables included in fixed assets and of investments ... interest expenses and similar charges ... ... Result before taxation ... taxation ... share in result of participations * ... Net result for the year ... * Only the income or loss from participating interests that are valued using the net asset value method (article 389-2 NCC) is included in this item. Income from participating interests valued differently must be shown separately as the first item of the financial income section, as ‘income from participating interests, not valued using the net asset value method’ (article 7-4 BMJ).