Multiple sources including Creditflux and Bloomberg Tax are reporting that the Netherlands is set to introduce 21% VAT on Collateralised Loan Obligation (CLO) management fees.
This tax will apply retrospectively to all Dutch CLOs and CLO warehouse SPVs from 1st April 2019.
The new VAT charge is expected to push up the cost of equity in these vehicles by about 10bp, as it is common for CLO management fees to charge around 50bp.
The Netherlands is home to around 20% of European CLOs, meaning a sizeable chunk of the market will be affected by this change.
This new tax ruling has taken industry by surprise, and it seems likely that this will drive new business to establish vehicles in other jurisdictions.
The obvious choice for CLO managers looking to relocate is Ireland, where 70-80% of the European CLO market is already located, and where there is already a gold standard eco-system for establishing and administering CLOs.
Ireland’s CLO sector has grown substantially over the past three years, with the number of Irish-domiciled CLOs rising by 243.2% from Q4-2016 to Q4-2019.
Atlantic Star Consulting research shows that 67 CLO managers were active in the Irish market at the end of Q4-2019, with the largest manager having a 7.2% share of Irish-domiciled CLOs.