Under certain conditions, co-invest and carried interest funds may qualify as mutual funds

Background

The Knowledge Group’s position relates to two Private Fund Limited Partnerships (hereinafter: PFLPs) organised under Scottish law and established in Scotland. One PFLP operates as a co-invest fund and the other as a carried interest fund. Both funds form part of a group structure centred around a larger investment fund.

The PFLP has been classified as an entity that resembles a limited partnership. The main question is whether these two funds can be qualified as investment funds or Undertakings for Collective Investment in Transferable Securities (UCITS), as referred to in Article 1:1 of the Financial Supervision Act (Wft). If that is the case and the other conditions are satisfied as well, the funds may, pursuant to Article 2(4) of the Dutch Corporate Income Tax Act 1969 (hereinafter: CITA 1969), qualify as a mutual fund. As a result, they are independently liable to pay tax under the priority rule.

In addition, an answer is provided for the question whether a fund established in Scotland may be regarded as an investment fund as referred to in Article 1:1 of the Financial Supervision Act in the context of its qualification as a mutual fund, given that the United Kingdom is no longer part of the European Union.

Tax qualification of the Scottish PFLP

The Legal Forms Qualification Policy Act has enshrined the legal form comparison method in statutory law with effect from 1 January 2025. This method is used to compare foreign legal forms with Dutch legal forms.

In the list of legal forms set out in the Decree on the Comparison of Foreign Legal Forms, Scottish PFLPs are classified as comparable to Dutch limited partnerships. Hence, Scottish PFLPs basically qualify as transparent legal forms, unless they are mutual funds.

Article 2(4) of the CITA 1969 includes the definition of a mutual fund, of which one section states that it must concern a fund classified as an investment fund or an Undertaking for Collective Investment in Transferable Securities as referred to in Article 1:1 Financial Supervision Act. This Knowledge Group position focuses in particular on the question whether this requires the fund to have its own, independently determined investment policy.

Co-invest fund and carried interest fund

As co-investing funds, the co-invest fund and the carried interest fund form part of the group structure surrounding a larger investment fund. Both funds are primarily intended to allow certain employees to share in the results of that larger investment fund. The larger investment fund’s objective is to invest in various portfolio companies.

A legal entity acts as the fund manager for the entire investment fund, including the co-invest fund and the carried interest fund. This fund manager holds a license from the local authorities responsible for supervising the financial sector. The fund manager’s staff are responsible for selecting and managing the investments and for strategic decisions concerning, amongst other things, the acquisition and sale of portfolio companies.

The capital for the larger investment fund is raised from various institutional investors. In addition, a small percentage of the capital is contributed by certain employees of the fund manager through the co-invest fund and the carried interest fund.

Qualification as a feeder fund

An investment fund raises funds from a diverse group of investors by issuing participations, to then invest these funds collectively in certain assets for a predefined objective. Within a group structure centred around a larger investment fund, so-called feeder entities may also exist. These entities do not have an independent investment policy, but form part of the investment strategy determined for the larger investment fund. They raise capital from investors, which they then invest in another fund – the so-called master entity.

Article 4(1)(m) of the AIF Directive defines what is meant by a feeder AIF. A feeder fund may also qualify as an investment fund as referred to in Article 1:1 of the Financial Supervision Act.The Knowledge Group argues that, in view of the above facts and circumstances, the co-invest fund and the carried interest fund should be reported as feeder funds. Both funds form part of the broader investment strategy determined by the fund manager for the larger investment fund. The fact that they do not establish their own independent investment policy therefore does not prevent them from being qualified as investment funds as referred to in Article 1:1 of the Financial Supervision Act.

The relatively limited contribution made by the participating employees does not justify a different conclusion either. The funds are used to grant (profit-sharing) rights to certain employees of the fund manager. As a result, they become an integral part of the larger investment fund offered by the fund manager and of the investment strategy determined for it. The Knowledge Group therefore concludes that the co-invest fund and the carried interest fund can be regarded as investment funds as referred to in Article 1:1 of the Financial Supervision Act. Provided that the other conditions set out in Article 2(4) of the CITA 1969 are also satisfied, they can qualify as mutual funds.

Funds outside the EU

According to the Knowledge Group, it is plausible that a fund established in Scotland, with a fund manager holding a management permission issued by the Financial Conduct Authority, may be regarded as an investment fund or a UCITS as referred to in Article 1:1 of the Financial Supervision Act. It is relevant that Scotland implemented the AIFM Directive whilst the United Kingdom was still a member of the European Union and that the Financial Conduct Authority fulfils a supervisory role comparable to that of the Netherlands Authority for the Financial Markets.

Source:

• Source: Tax Administration Knowledge Group, 30 July 2026, KG:211:2026:30