A draft bill has been submitted to amend the tax qualification policy for two tax qualifications of subjects in the Dutch corporate income tax act (“CITA”) by the Ministry of Finance[1]. This is in regards to the open limited partnership[2] (In Dutch the open Commanditaire Vennootschap; “open CV”) and the open mutual fund (in Dutch; open fonds voor gemene rekening). The CIT-liability of the open CV as a subject (due to it’s non-transparent tax qualification) will expire on January 1, 2022 according to this proposal. There will be a transition period to accommodate this.
In addition, these amendments in the CITA will also redefine the definition of the open mutual fund. These are the main points of a draft bill for which the Ministry of Finance has started an internet consultation. The aim is to combat hybrid mismatches. The BV-CV structure has been a popular structure between The Netherlands and the USA in which the US sees the CV as transparent and the Netherlands sees it as non-transparent which results in a hybrid mismatch.
For the application of dividend withholding tax and withholding tax on interest and royalties, the open CV will cease to be defined in these laws as a subject and therefore a withholder. With the elimination of the CITA liability for the open CV, all existing open CVs will be considered transparent for tax purposes as of January 1, 2022. As of that date, all - including limited partners - will be subject to personal income or corporate tax directly for their share in the results in the open CV. So for example; if a Dutch BV receives a distribution from a US subsidiary with an open CV in between, that dividend will be included in the tax base of the BV and not of that of the open CV because it will be qualified as transparent for Dutch tax purposes.
With regard to the open mutual fund, it is proposed - as with the open CV - to abolish the requirement of consent. The consent requirements entail the following; to ensure the closed nature of a limited partnership, all partners-both general partners and limited partners-must separately consent to the entry or replacement of limited partners. This will no longer be a requirement if the proposal is accepted.
It is also proposed that for two special situations not the current method of qualification of legal forms be used, but a supplementary method. This concerns situations where no comparable Dutch legal form exists, as a result of which the foreign legal form cannot be included in Dutch taxation in a comparable manner either.
If you would like to know what specific tax implications this proposal can have for your group and company structure, we are glad to help you with this and other tax matters.
[1] Ministerie van Financiën. (2021). Overheid.nl | Consultatie Consultatiedocument aanpassing fiscaal kwalificatiebeleid rechtsvormen. internetconsultatie.
[2] Article 2 paragraph 3, sub c AWR
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