Qualification of entities for Dutch tax purposes: Let’s try a different approach
Carijn van Helvoirt-Franssen and Edward Hendrickx
by Carijn van Helvoirt-Franssen and Edward Hendrickx
In a society where tax planning is less and less accepted, preventing hybrid mismatches, amongst other things, is a top priority. As the worldwide media considers the Netherlands to be a tax haven, the Dutch government has felt a responsibility to be a front runner on this matter. This resulted in a bill on the change of qualification of foreign entities, which will come into effect on 01 January 2025. This change could have major, undesired tax consequences.
Current legislation
Currently, for foreign legal forms, Dutch tax legislation provides an assessment framework to determine the taxable status of an entity from a Dutch perspective (fiscally transparent or non-transparent). In addition to evidently transparent or non-transparent entities/partnerships, there is a third category: the “CV-achtige” (limited partnership-ish).
The taxable status of this third category depends on the consent requirement – can new partners join the partnership without consent (non-transparent), or is consent of the current partners necessary (transparent)?
This framework in the Netherlands no longer aligns with current and more commonly used assessment frameworks around the world and therefore could lead to hybrid mismatches.
New legislation
The new Dutch legislation aims to align with systems which, from a global perspective, are more common.
The new legislation distinguishes two categories of foreign entities/partnerships: (1) there is a Dutch equivalent; and (2) there is no Dutch equivalent. In category 1, the taxable status of the Dutch equivalent entities is applicable. For the second category, the place of tax residency is most important:
Tax residency in the Netherlands: non-transparent.
Tax residency outside of the Netherlands: same qualification as in tax residency state.
The Dutch government currently has a resolution under consultation regarding the determination of whether there is a Dutch equivalent or not.
The new qualification framework also has consequences for the Dutch domestic entity “commanditaire vennootschap” (limited partnership), even in the Dutch national context. As of 01 January 2025, regardless of the earlier-mentioned consent requirement, this entity is considered transparent. This seems a small change, but it could have huge undesired consequences for companies which use the non-transparent option, as a change of taxable status is considered an exit, and therefore a taxable event for several tax categories.
As the Dutch government is not the worst kind, it has appointed 2024 as a transition year. In 2024 only, there are several transitional provisions in Dutch tax law which can, if applied correctly, prevent undesirable tax consequences on 01 January 2025.
Conclusion
Given the above concerns, if you have a Dutch company in your structure, please be aware of the potential tax consequences of this change of Dutch tax legislation. Let us know if you wish to map out the consequences for you or your client.
GGI member firm EJP Financial Astronauts's-Hertogenbosch, The NetherlandsT: +31 73 850 72 80
Auditing & Accounting, Corporate Finance, Tax
EJP Financial Astronauts are auditors, advisers, and challengers. Their team of 55 consists of auditors, accountants and international tax lawyers that have a wide range of expertise. Their main fields of expertise are Dutch corporate and personal income tax, international taxation, Dutch royalty, interest and dividend withholding tax, estate planning, and wage tax. They have an AFM licence to perform audits for the larger mid-sized companies.
Edward Hendrickx is EJP's Founder, Partner & Tax Specialist. He specialised in international tax advice, mergers & acquisitions, and consultancy on entrepreneurship & for larger SME clients. Contact Edward.
Carijn van Helvoirt–Franssen completed a master’s degree in fiscal economics at Tilburg University in 2014 and has been part of the EJP team since 2020. As an all-round tax specialist, she focuses on providing tax advice to companies and their directors and major shareholders.Contact Carijn.
