On June 3, 2022, the Dutch State Secretary for Finance presented the fiscal policy and the implementation program for the coming years. In the agenda, he sets out the ambitions in terms of taxation and their implementation by the tax administration.
An important ambition is the modernization of the tax system. For example, the tax system will be adapted to international developments in the prevention of tax evasion (eg ATAD3 and Pillar 1 and 2) and also aims to achieve climate ambitions. Another ambition is to abolish various less efficient tax regimes. Overall, in my view, the letter demonstrates ambition and vision but, above all, seems thoughtful and nuanced, which is a breath of fresh air in the current fiscal climate. In this blog, I will only focus on an update of the proposed changes to the Dutch rules on the classification of Dutch and foreign legal persons.
As discussed in more detail in my July 2, 2021 blog post (see link), a consultation document including the draft law “Adaptation of the classification of legal forms” was published, modifying among other things the methods of classification of foreign legal persons. On July 1, 2021, the Dutch State Secretary for Finance published a letter in which he indicated that the proposed changes to the Dutch mutual fund (fonds voor gemene rekening) would no longer be part of the legislative proposal on the classification rules Dutch. Other than the postponement, no other updates have been released regarding the progress of the bill.
So far, that is. The budget policy and implementation program includes a paragraph on the draft law which very briefly discusses the content of the draft law and the expected timetable. First, the Secretary of State re-emphasizes that the bill does not specifically address tax evasion. Since January 1, 2020, the Netherlands has implemented the ATAD2 hybrid mismatch measures which should combat tax evasion using hybrid mismatches between different jurisdictions. One of the purposes of this bill is to avoid classification differences between jurisdictions, i.e. aiming to eliminate the cause of hybrid mismatches, rather than the symptoms.
The agenda update is brief and consistent with previously published information. Under current Dutch tax law, a sponsor vennootschap or CV (limited partnership) is considered transparent (a closed CV) for Dutch tax purposes and the partners are taxed on the income derived from their interest in the CV, if the unanimous consent of all the partners is required to the admission or substitution of a limited partner. With the draft legislation, the government plans to abolish the limited partnership consent requirement. As a result, an open CV itself will no longer be subject to corporation tax when the bill is enacted. Based on current Dutch policy, in principle, a foreign legal entity is treated the same for Dutch tax purposes as the comparable Dutch legal entity. This means that, based on the bill, foreign limited partnerships that do not meet the current consent requirement will no longer be considered non-transparent for Dutch tax purposes. The intention is to avoid differences between the Dutch and foreign classification of legal forms and the resulting inconsistencies.
Contrary to the consultation document 2021 – but in accordance with the letter of July 1, 2022 – the adaptation of the tax treatment of the Dutch mutual fund is no longer mentioned in the update.
The plan is to introduce the bill in the spring of 2023 with January 1, 2024 as the proposed effective date.