International Tax Alert

Back to outline Tax Plan

On 19 September 2023, the Dutch Ministry of Finance published the government’s tax plan for 2024. The plan includes several proposals that are relevant for international companies. The key topics are discussed below.

The legislative proposals will be discussed by parliament and are expected to be adopted by the end of 2023. The envisaged entry into force dates will be indicated per measure.

Changes to Dutch tax qualification of open CVs, open mutual funds, and foreign incorporated entities

Introduction
The plans include changes to the Dutch tax qualification of open CVs, open mutual funds, and foreign incorporated entities. These measures aim at reducing qualification conflicts. Where ATAD2 countered the tax effects of qualification mismatches, this legal proposal aims to counter qualification conflicts as such. The proposed amendments affect the tax laws where the qualification of legal forms is relevant (e.g., personal income tax, corporate income tax, dividend withholding tax and conditional withholding tax).

Dutch open CVs
It is proposed that the non-transparent Dutch limited (liability) partnership (‘open commanditaire vennootschap’ or open CV) will cease to exist for Dutch tax purposes, by removing the ‘unanimous consent requirement’. As a result, a Dutch CV will be classified as transparent for Dutch tax purposes (unless the Dutch CV will be qualified as a reverse hybrid).
 

Dutch open mutual funds
In addition, the Dutch open mutual fund (‘open fonds voor gemene rekening’ or FGR) will be redefined for Dutch tax purposes. Specifically, under the proposed rules a Dutch mutual fund (as an opaque entity subject to Dutch corporate income tax) must qualify as an investment fund (‘beleggingsfonds’ or ‘fonds voor collectieve belegging in effecten’) as defined in article 1:1 of the Dutch Financial Supervision Act (Wet op het financieel toezicht). Additionally, for the fund to be considered an opaque corporate taxpayer, the units must be transferable in any way other than solely through the redemption by the fund itself. All other funds will qualify as transparent. Following this amendment it will no longer be possible to use the mutual fund when investing private assets within the family circle.

Transitional regime
As a result of the potential change in qualification of the Dutch open CV and the Dutch open mutual fund (qualifying as transparent), they will be deemed to have disposed of all assets and liabilities to their participants at fair market value and to have ceased all their activities in the Netherlands. All hidden reserves, tax reserves and goodwill will automatically be subject to a final settlement unless allocable to the general partners in the open CV. Also the limited partners in the open CV or participants in the mutual fund are deemed to have disposed of their certificates of participation and loans receivable at fair market value.

The transitional regime offers the possibility of using certain tax facilities to defer (immediate) taxation. The regime provides for certain conditional facilities, e.g.:

• A roll-over relief mechanism for any tax claims of the open CV or the open mutual fund on hidden reserves, tax reserves and goodwill;
  
• A share-for-share merger regime for specific participants, including a temporary real estate transfer tax exemption;
• The corporate income tax due as a result of the deemed disposal and cessation may be paid in equal instalments spread over ten years.
   

Foreign incorporated entities
Foreign entities are qualified as transparent or non-transparent based on an analogy with the tax treatment of a comparable Dutch legal form (legal form comparison method). For application of the method the changed qualification of Dutch open CVs and Dutch mutual funds is also of relevance. It is proposed to codify this method in various tax laws. Additionally, two methods for the Dutch tax qualification of foreign legal entities in specific circumstances are proposed: the fixed method and the symmetrical method. These two methods only apply to foreign entities with a legal form that is not comparable to a Dutch legal form.

The fixed method will be used if such an entity is incorporated or set up under foreign law and is established in the Netherlands. In that situation, the entity is always considered a domestic taxpayer for Dutch corporate income tax purposes.

The symmetrical method provides a solution for situations in which such an entity is incorporated or set up under foreign law and is established abroad. This foreign entity is considered non-transparent for Dutch tax purposes if that foreign entity is independently taxable under the tax laws of a state that treats that entity as a resident. Foreign entities without a comparable Dutch legal form that are not considered independently taxable under the symmetric method are considered transparent for Dutch tax purposes.

Expected timing
Effectively, the new rules are envisaged to enter into force on 1 January 2025. The proposed transitional law (including deferral possibilities) should apply for the period 1 January 2024 through 31 December 2024.

Adjustments to the regimes for exempt investment institutions and fiscal investment institutions

Exempt investment institutions
The proposal restricts the eligibility for the exempt investment institutions (‘vrijgestelde beleggingsinstellingen’) regime to those investment institutions that meet the definition of an investment institution (‘belegginginstelling’) or UCITS (‘icbe’) as laid down in the Dutch Financial Supervision Act. This amendment will abolish the current possibility to use the exempt investment institution regime when investing private assets within the family circle. Effectively, the new rules are envisaged to enter into force on 1 January 2025.

Fiscal investment institutions
Contrary to the earlier announcements, the current proposal contains a rule which only no longer allows fiscal investment institutions (‘fiscale beleggingsinstellingen’) to invest directly in Dutch real estate, although indirect investments in Dutch or foreign real estate through a shareholding in a regularly taxed real estate entity will continue to be possible. Also in contrast to the earlier announcements, a fiscal investment institution may still manage such a regularly taxed real estate entity and manage a property development or service subsidiary. The measures will be introduced on 1 January 2025, providing fiscal investment institutions the opportunity to restructure. As part of this, a temporary exemption from real estate transfer tax will be provided in the year 2024. Finally, the funding requirement will remain unchanged. For direct investments in non-Dutch real estate and indirect investments through a shareholding in a regularly taxed real estate entities, debt financing will remain limited to no more than 60% of the book value of the (underlying) real estate. For other investments, debt financing will remain limited to no more than 20% of the book value of those investments.

Measures to strengthen the approach to combat dividend stripping

The proposal contains measures to strengthen the approach to combat dividend stripping as from 1 January 2024. Dividend stripping occurs when the legal and beneficial entitlement to dividends is split to achieve a dividend withholding tax benefit. To combat dividend stripping, the burden of proof is adjusted with regard to the beneficial ownership of the proceeds. In this respect, the proposal contains an efficiency margin. In addition, the bill gives a further clarification of the concept of 'a combination of transactions in affiliated relationships'. Moreover, the registration date will be codified for certain shares by establishing who, on a given registration date, is entitled to a set-off, exemption or refund of withheld dividend withholding tax. The proposed amendments will be included in the personal income tax act, the corporate income tax act and the dividend withholding tax act. In the proposal it is indicated that further research will be conducted to design alternative measures to combat dividend stripping.