|Jeroen den Hamer||Latifa Ait Youss|
Market participants making investments in the Netherlands such as special purpose acquisition companies, private equity funds or their managers face the question whether their activities could be regarded as acting as an entrepreneur (ondernemen), or as investing (beleggen).
For market participants it is relevant to asses whether they are acting as an entrepreneur or as an investor so that they can comply with financial regulatory requirements. A financial regulatory requirement that could be relevant in this respect is the licence obligation for (managers of) collective investment schemes offering units in such a scheme.
In the past, the Dutch financial regulators have published consecutive policy rules as to the interpretation of investing and the dividing line with entrepreneurship. However, these policy rules only related to specific situations, such as shipping and real estate financing.
The Dutch Authority for the Financial Markets (the AFM) has therefore recently published the Policy Rule Entrepreneurship or Investing (Beleidsregel ondernemen of beleggen) (the Policy Rule) replacing the existing policy rule and providing a general framework. The AFM has already indicated that it could be possible that the Policy Rule will need to be amended as a result of the implementation in Dutch legislation of the Directive on Alternative Investment Fund Managers.
The Policy Rule provides a decision support tool in the form of a decision tree. The starting point of the decision tree is the question whether a market participant (or certain of its participating interests over which it has actual control) carries out work which has an effect on the appreciation of its assets. To establish whether this is the case, it should be assessed whether a market participant takes an active or passive approach to achieve appreciation of its assets. The decisive factor relates to whether the impact of the work is geared towards such appreciation, ie is such work (directly or indirectly) geared towards such appreciation (entrepreneurship), or is the appreciation achieved merely by speculation on such appreciation or generating a cash flow (investing)? The examples given by the AFM show that there is a thin line between entrepreneurship and investing. For example: when a market participant buys real estate which it refurbishes and sells on, it is acting as an entrepreneur. However, when a market participant acquires real estate, which it rents out and subsequently sells, it is investing. In the latter case the market participant does not carry out work which increases the value of the real estate.
The Policy Rule does not provide market participants with ready-made answers. It could therefore be possible that uncertainty remains as to the qualification of activities. In such cases, it could be possible to ask the AFM for guidance and its formal view. In the Policy Rule, the AFM has indicated that it will publish all requests for guidance and its interpretation thereof in anonymous form on its website.
With the Policy Rule and the decision support tool included therein, the AFM has made an effort to further clarify the boundary between investing and entrepreneurship. Whether the Policy Rule indeed provides the necessary support has yet to be determined in practice.
Jeroen den Hamer and Latifa Ait Youss