Today was Budget Day in the Netherlands with the following key takeaways:
Several bills aim to codify the entity classification rules and change the regime for CVs, LPs, FGRs and trusts:
CVs (Dutch limited partnerships)
• As of 2025, CVs will be treated as transparent entities (no more unanimous consent requirement for CVs). This means that the “Open CV” regime will be abolished.
• Open CVs will liquidate per year-end 2024. Roll-over rules apply for Dutch taxpaying CV partners and via a new restructuring facility. For other situations, the tax burden can be paid in installments in 10 years.
• An exception applies for ‘reverse hybrid CVs’ (ATAD2); their tax treatment does not change.
Foreign Limited Partnerships (comparable to Dutch CVs)
• Foreign Limited Partnerships comparable to Dutch CVs are treated equivalent to Dutch CVs. Hence, they will become transparent from a Dutch perspective.
• This means that if a Dutch taxpayer holds an interest in an LP, the participation exemption will not apply anymore.
Funds for mutual account (FGRs)
• The definition of FGR will change. Under the bill, only regulated investment funds (art. 1:1 WFT) with tradeable participations qualify as non-transparent FGR.
• A new entity classification “transparent fund” is introduced to designate collective investment entities other than FGRs.
• Grandfathering rules similar to the CV rules are proposed (roll-over, restructuring facility and tax payment in 10 years).
Non-resident trusts and other non-comparable entities
• Foreign entities which are not comparable to Dutch legal forms are treated as transparent if the residence state does not treat the entity as a taxpayer.
• This applies for certain trusts, but also for the UK LLP, Irish ULC and German KGaA.
Other proposals include:
• The proposal strengthens the inspector’s position in dividend stripping cases. Taxpayers who offset Dutch dividend WHT against their personal or corporate income tax must demonstrate beneficial ownership of the shares. Only if the credit is below EUR1k, the tax inspector retains the burden of proof.
• The changes intend to counter the effects of a ruling of a recent Dutch Supreme Court ruling (in line with previous announcements). The SC ruled that, in calculating the leverage ratio in respect of a certain equity investment, only shareholder loans that are treated as equity for tax purposes should be included. By excluding ‘standard, non-equity like’ shareholder loans, the scope of the rules would become too narrow and too easy to escape. The proposed changes will, with retroactive effect as of 26 June 2023, ensure that non-equity like shareholder loans remain included in the leverage ratio calculation.
See our separate tax alert for the real estate industry.