The Netherlands - Tax

The Dutch government proposed amendments in the tax qualification policy for (foreign) legal entities (qualification as tax transparent vs non-transparent) starting from 2025. The legislative proposal, published on 19 September 2023, aims to diminish qualification differences between countries. In addition, the stand-alone tax liability of the Dutch ‘open’ limited partnership (‘open commanditaire vennootschap’; “open CV”) will be abolished as of 1 January 2025 (except for reverse hybrids). The legislative proposal broadly provides for the following changes:

(i) The current qualification rules will be extended with two additional qualification methods: (a) the fixed method and (b) the symmetrical method. These additional two rules only apply if the legal form of a foreign entity is incomparable with any Dutch legal form. Under the fixed method a foreign entity based in the Netherlands with a legal form incomparable to a Dutch one will for Dutch tax purposes be considered as non-transparent. Under the symmetrical method a foreign entity based outside of the Netherlands with a legal form incomparable to a Dutch one will be considered non-transparent if that entity is treated as stand-alone taxpayer in that other country.

(ii) The abolishment of the consent requirement (‘toestemmingsvereiste’) with respect to the open CV as a result of which all CVs and comparable foreign legal entities will be considered tax transparent (except for reverse hybrids).

Regarding the Dutch mutual funds (‘fonds voor gemene rekening’; “FGR”), it has been proposed to align the definition of an open (non-transparent) FGR with the definitions of investment institutions under the Financial Supervision Act (‘Wet op het financieel toezicht’; “Wft”). In essence, this means that an FGR will only be open (non-transparent) if the FGR is designated as an ‘investment fund’ or ‘fund for collective investment in securities’ as referred to in Article 1:1 Wft and the participation in this fund is evidenced by transferable certificates of participation. Family funds are generally unlikely to meet these conditions.

These adjustments in the CV and FGR regimes will enter into effect on 1 January 2025, giving taxpayers time to reorganize. The following complementary measures are proposed to facilitate such restructuring during calendar year 2024 for the CV regime:

(i) A rollover facility: the tax claim on unrealized reserves, fiscal reserves and goodwill is taken over by the limited partners;

(ii) A share merger facility: the limited partners can transfer the tax claim to a Dutch limited company (BV or NV);

(iii) A rollover facility in the case of taxable income from putting assets at the disposal of others (‘terbeschikkingstelling’): the underlying limited partners can transfer the tax claim on assets put at the disposal if there is no material change in the putting of assets at the disposal; and

(iv) A deferred payment option up to ten years.

To prevent immediate taxation on the amendments of the FGR regime, the proposed legislation includes three transitional provisions:

(i) A roll-over facility for the tax claim on the unrealized reserves, fiscal reserves, and goodwill in the FGR. This facility only applies in case all the participants are subject to Dutch corporate tax;

(ii) A share merger facility, based on which participations can be changed in exchange for shares in a Dutch company; and

(iii) A deferred payment option up to ten years.

In addition to the above mentioned specific transitional provisions, a temporary and conditional exemption for real estate transfer tax (“RETT”) in relation to the above-mentioned share mergers is provided. Complementary RETT measures are limited to FGRs/CVs that already existed on 19 September 2023, at 3:15 PM. For this RETT relief, the government seems to favor retroactive application by aligning it with the registration time of the open CV in the Trade Register, and for the open FGR the registration with the Dutch tax authorities, regardless of whether the open FGR/CV existed before that moment but was not duly registered, or the registration had not yet been processed by the Dutch Chamber of Commerce. It currently remains uncertain whether this interpretation of the term "existing open FGR/CV" will ultimately prevail.

It is expected that all above proposals – likely with some amendments – will be adopted by the Dutch government before year-end 2023. We highly recommend reviewing all investment structures as soon as possible, especially in case of involvement of CVs and FGRs, in order to assess the tax consequences and whether tax facilitated restructuring can take place in 2024.

As stated in our previous updates (Q1 and Q2 of 2023), from 1 January 2025, a fiscal investment institution (‘fiscale beleggingsinstelling’; “FBI”) can no longer benefit from the FBI regime if it invests directly in Dutch real estate. Its profits will subsequently be taxed with Dutch corporate tax. The proposed changes also provide in a temporary conditional exemption for RETT applicable from 1 January to 31 December 2024 in order to facilitate restructuring in light of this change.