On December 21, 2009, the Deputy Minister of Finance published an updated Decree regarding qualification of non-Dutch collaborative ventures. The Decree offers an amended framework to assess whether a non-Dutch collaborative venture should be considered as a transparent or non-transparant entity for Dutch tax purposes.
This Decree is an updated version of the Decree of December 18, 2004. The updated Decree includes a few new policy positions, partially rewrites the criteria for assessing the qualification and explains them in further detail, and alters how these criteria are assessed.
The Decree focuses on collaborative ventures formed or incorporated under non-Dutch law that are comparable with entities as meant in Dutch tax law. The Decree does not apply to legal forms that are similar to cooperatives, associations, foundations, mutual funds, trusts, and other allocated funds.
A collaborative venture’s transparency is relevant for corporate income tax, personal income tax, and dividend withholding tax. If an entity is transparent, the results are imputed to the participants and not the collaborative venture itself. It then depends on the nature of the participant whether, and the extent to which, the income is subject to tax. A non-Dutch, non-transparent collaborative venture can, under certain circumstances, be a non-resident taxpayer in the Netherlands.
Companies limited by shares (such as NVs) are non-transparent by definition, whereas partnerships (such as general partnerships) are, in principle, transparent. If the non-Dutch collaborative venture is sufficiently similar to one of these entities, it will help to determine whether or not it is transparent. The assessment framework therefore sets out four main criteria to distinguish between these two types of entities. These criteria are, in short:
· Can the collaborative venture hold legal title to the assets used to perform its activities?
· Do all participants have limited liability?
· Is the collaborative venture’s capital divided into shares?
· Can participants be admitted or replaced without the permission of all the participants (transferability)?
If, based on these questions, the non-Dutch collaborative venture is considered to be a partnership, it is not automatically considered transparent. In such cases, therefore, the following additional criteria must be assessed:
· Is it a collaborative venture that is similar to a Dutch open limited partnership?
· Is the entity a capital-based company participating in the open market?
If the answer to both of these additional questions is “No,” it is indeed a transparent entity.
The Dutch Revenue’s website will post a list indicating the expected outcomes of the assessment framework for assessed non-Dutch collaborative ventures. Taxpayers seeking certainty regarding the qualification can submit a request to the inspector.
The Decree has retroactive effect from December 11, 2009. The transitional rules contain a further provision: any qualification under the old Decree of 2004 may be maintained until the close of the second financial year following the financial year in which the decree became effective.