Additional methods qualification of legal forms
The Tax Authorities qualify foreign legal forms as 'transparent' or 'non-transparent' in order to apply Dutch taxes correctly. In doing so, the Tax Authority compares these foreign legal forms with Dutch legal entities: the so called ‘legal form comparison’ method. Under the proposed measures, the method of legal form comparison is maintained and is the starting point for the qualification analysis.
Sometimes, based on the legal form comparison, a foreign legal form is not comparable to an existing Dutch legal form. For these situations, the legislative proposal provides two additional methods:
- Fixed method
ls the foreign legal entity a tax resident in the Netherlands? Then the Tax Authorities consider it non-transparent. The foreign legal entity is then fully subject to Dutch corporate income tax.
- Symmetrical method
Is the foreign entity a tax resident of a country outside the Netherlands? Then the Tax Authorities will follow the qualification of the jurisdiction where the entity is tax resident. The symmetrical method applies if a Dutch entity has an interest in the foreign entity or vice versa.
Abolition of the consent requirement
The removal of the consent requirement is also part of the proposed measures. The consent requirement determines whether a Dutch limited partnership (CV) is 'transparent' or 'non-transparent'. From 1 January 2025, the Tax Authorities will always qualify a Dutch CV as transparent for Dutch tax purposes. As a result, the CV no longer has to pay Dutch corporate income tax or Dutch withholding tax.
Make use of transitional law
Does this abovementioned lead to the situation where your tax liability for Dutch corporate income tax changes to no corporate income tax liability? If that is the case, then you will receive a final settlement at the level of your non-transparent limited partnership (open-CV). You can make use of transitional law so that you can avoid immediate taxation. There are a total of four facilities to avoid direct taxation:
- A pass-through facility: the tax claims on hidden reserves, tax reserves and goodwill are taken over by the limited partners;
- Share merger: the limited partners can pass on the tax claim on their share in the open CV to a (new or existing) holding company;
- Pass-through facility in the following situation: the assets that a limited partner provides to a to an open CV are deemed to be disposed. This pass-through facility prevents immediate taxation over the disposal of the assets.
- Payment in instalments of up to 10 years: In the situation where it is not possible for the open CV to use the above facilities, the open CV faces immediate taxation. Under conditions, the immediate payment may be paid in instalments of 10 years.
When does the final settlement not apply?
The final settlement does not apply to an Open CV that remains taxable. This is because this entity qualifies as a so-called 'reverse hybrid entity'. Since 1 January 2022, the tax authorities consider these so-called reverse hybrid entities as Dutch domestic taxpayers. If this entity meets certain conditions, it is fully subject to corporate income tax. Do you incorporate the non-transparent open CV only after publication of the legislative proposal on 19 September 2023? Then the transitional law does not apply.
What is the best thing to do now?
Analyze your group structure to identify non-transparent (open-)CVs. If you identify Dutch open CV’s, analyze the facilities and avoid direct taxation when these limited partnerships become transparent by default. Also look at your group structure for foreign entities that are not comparable to a Dutch legal entity. Our specialists will be happy to help you with these analyses so that you do not overlook anything.