Inquiry expected into sale of know-how

Date: 10/04/1997

By Chris Johnstone

COMMISSION competition watchdogs are expected to deepen their probe into a handful of cases where big Dutch companies sold their know-how to banks in a complicated financial manoeuvre which allowed them to make an immediate cash gain and cut their long-term tax bill.

In mid-March, the Dutch government replied to the first set of European Commission questions about what some national newspapers have dubbed the 'technolease' affair.

But The Hague anticipates that Competition Commissioner Karel van Miert will dig deeper and may even open a formal investigation within the next few weeks.

The Dutch government has bluntly told Van Miert that the issues raised concern its domestic fiscal regime and the EU should keep its nose out. It has reiterated that position in its responses to 136 parliamentary questions. But Van Miert's officials are refusing to comment on the case.

Dutch firms can still take advantage of technolease arrangements to cut their tax bills if they meet the criteria set out by the finance ministry. “Not many companies do so because few are in a position of having the sort of specific know-how that could make a deal possible with a bank,” said an official.

The technolease cases now under scrutiny date back to 1993 and 1994 when struggling Dutch electronics giant Philips and aircraft manufacturer Fokker made deals with private banks to sell know-how and lease it back.

Philips was in dire financial straits at the time. Fokker was also beginning to suffer from what was to prove a deadly cocktail of low market prices, sluggish demand and high production costs. It has since been officially declared bankrupt, although talks continue on and off to revive its core aircraft production activities.

The duo was following in the path of other firms which had opened up the technolease trail as early as 1987 without the blaze of publicity that accompanied the Philips and Fokker cases, although The Hague has remained silent about the identity of some of the past technolease beneficiaries.

The Dutch government only set out detailed criteria for technolease deals in August 1994, aimed at ensuring the agreements were real and not set up solely for tax reasons.

The conditions lay down that the technology being sold must be exclusive, the lease period must be shorter than the expected duration of the know-how, a relationship must exist between the lease price and write-offs, and the lessor must expect to make some profit from the transaction.

The Dutch government is puzzled by the Commission's sudden interest in the Philips case and some officials hint that its rivals in the restricted world of top European electronics companies might have been stirring up problems.

An official said that the Commission was aware of the Philips case at the time, but decided not to do anything about it. Now, he claimed, the institution had jumped on a bandwagon led by one Dutch newspaper which is painting a Watergate scenario of official secrecy and deception over the cases.

The Netherlands is not the only EU country which allows for technolease-type transactions, say officials, citing the case of UK millionaire composer Andrew Lloyd Weber who agreed to sell the rights for a yet unwritten musical which he is expected to pen by the end of the century.

Deals involving the sale of know-how for tax reasons are a logical follow-on from the more run-of-the-mill schemes offering tax breaks for leased cars or buildings, said one Dutch official.