Dutch Tax Entity Classification Rules: Extended Timeline
On 8 May 2023, the Dutch Ministry of Finance published a letter outlining policy intentions for the coming years. This letter mentions that the two legislative proposals to amend the Dutch tax entity classification rules will be published on Budget Day 2024 (i.e., 19 September 2023) and that the timeline for implementation will be extended. The two legislative proposals are expected to most notably lead to a default classification of LPs and funds for joint account to transparent for Dutch direct tax purposes. This is relevant for Dutch LPs (i.e., the CV) and funds for joint account (i.e., the FGR), but also comparable foreign entities such as the Luxembourg SCSp and FCP.
For LPs, the default transparent classification will be achieved by abolishing the unanimous consent requirement. Funds for joint account would only classify as tax opaque when considered a regulated investment fund of which the participations freely transferable. More detailed information regarding the proposed changes for LPs can be found here and for funds for joint account here.
The legislative proposals are expected to include deemed disposal mechanisms for LPs and funds for joint account that shift from tax opaque to transparent as a result of the proposed changes.
For LPs and funds for joint account, as well as their limited partners and unitholders, that are currently subject to Dutch corporate income tax this could lead to exit taxation at a headline rate of 25.8%. The transitional rules are expected to include two roll-over facilities in light of this exit taxation:
- a roll-over facility when all limited partners or unitholders are subject to Dutch corporate income tax;
- a share-for-share roll-over facility for limited partners or unitholders subject to Dutch personal income tax, which also includes a temporary real estate transfer tax exemption.
As a result of feedback obtained during the public consultation earlier this year covering the proposed legislative changes for funds for joint account, the Ministry of Finance has now stated that the transitional rules - which include the roll-over facilities - will apply during the year 2024 and that the 'material provisions' (e.g., the abolishment of the unanimous consent requirement and changes to the definition of an opaque fund for joint account) will become effective as of 1 January 2025. This is one year later than initially intended. The reason for this extended timeline is to give taxpayers sufficient time to restructure. The letter does not provide any further details. The exact contents of the legislative proposals will only be disclosed on Budget Day later this year.
HOW CAN A&M HELP?
If you would like to receive more information or require assistance to assess the impact of the proposed rules for your investment structure(s), please feel free to get in touch with your usual A&M adviser, Roel de Vries or Nick Crama.
