Consultation regarding changes to the entity qualification rules for Dutch tax purposes | Deloitte NL


Consultation on changes to the entity qualification rules for Dutch tax purposes

On 29 March 2021, the Dutch government published an internet consultation on the Dutch tax qualification rules relevant for certain (Dutch and foreign) incorporated entities. Stakeholders are invited to submit their comments to the consultation on the draft proposal ultimately by 26 April 2021. The proposal is expected to be published on Budget Day, in September of this year. The proposal is aimed to enter into force on 1 January 2022.

30 March 2021


The Anti-Tax Avoidance Directive II (ATAD II) introduced hybrid mismatch legislation in 2020. The entity qualification policy of The Netherlands resulted in unnecessary hybrid mismatches. This policy deviates from the international standards. One of the major reasons for the draft proposal is to reduce these mismatches.

First of all, it is proposed that the non-transparent Dutch limited (liability) partnership (‘open commanditaire vennootschap’, or CV) will cease to exist for Dutch tax purposes effective from 1 January 2022. Transitional law will be implemented to that end. Similarly, the qualification of foreign limited (liability) partnerships as non-transparent for Dutch tax purposes will be amended. In addition, the open-end mutual fund (‘open fonds voor gemene rekening’ or FGR) will be redefined for Dutch tax purposes. Finally, it is proposed to adjust the existing method for the qualification of foreign entities in two extraordinary situations by introducing a supplementary method.

It is clear that in case of a CV or a FGR in the structure it is advisable to further assess the consequences of this draft proposal. This also applies to the qualification of foreign partnerships and legal forms that are not comparable to a Dutch legal form.


Compared to (most) other countries, the current Dutch rules governing the tax qualification of certain entities are relatively strict in the sense that entities comparable to a Dutch limited (liability) partnership (CV) are often qualified as non-transparent for Dutch tax purposes. This is generally caused by the ‘unanimous consent requirement’, according to which the admission and substitution of limited partners should be subject to the consent of all (general and limited) partners in the entity. If this requirement is not met, the entity concerned is often qualified as non-transparent for Dutch tax purposes, whereas (most) other countries would view the entity as transparent for tax purposes. This applies to Dutch CVs, as well as to similar foreign entities such as limited partnerships. The Dutch government now proposes to redefine the Dutch tax qualification, to align with international standards and reduce the number of potential hybrid mismatches.

Dutch CVs

Under the proposal, in principle all Dutch CVs will be qualified as transparent for Dutch tax purposes irrespective of whether the admission and substitution of limited partners is subject to the unanimous consent of all partners. All Dutch CVs will therefore in principle be treated as transparent for the purpose of Dutch corporate income tax (CIT), Dutch dividend withholding tax (DWHT) and Dutch conditional interest and royalty withholding tax (CWHT) effective from 1 January 2022. One of the consequences is that if a Dutch CV currently is a withholding agent for outbound dividends, interest and royalties it will no longer qualify as such on or after 1 January 2022.

As a result of the change in tax qualification for Dutch CIT purposes, the Dutch CV will be deemed to have transferred all its assets and liabilities to its partners and to have ceased all its activities in the Netherlands. This deemed disposal is similar to the rules that apply if a taxpayer for Dutch CIT purposes migrates from the Netherlands and effectively results in a realization of hidden reserves and goodwill.

As the corporate tax liability of the Dutch CV is abolished, the limited partners no longer hold a share in the Dutch CV. The assets and liabilities of the (transparent for tax purposes) limited partnership will from then on be attributed directly to the limited partners in proportion to each partner's entitlement. The consultation proposal therefore provides that at the time immediately preceding the termination of the corporate tax liability of that CV, a limited partner of a Dutch CV is deemed to have disposed of his share in (and claims on) that CV, at market value (deemed disposal).

It should be noted that a separate consultation proposal regarding the Dutch tax treatment of certain Dutch reverse hybrid entities is also undergoing a public consultation (see our alert). This separate consultation proposal is part of the implementation as agreed under ATAD II. Under the proposal, it is stipulated that Dutch CVs can qualify as a reversed hybrid entity depending on the tax qualification of the Dutch CV from the perspective of its partners. This may cause the Dutch CV to again become liable to Dutch CIT, Dutch DWHT and Dutch CWHT purposes (including withholding agent obligations). How this consultation proposal relates to the consultation proposal on legal forms is not entirely clear yet.

Transitional law

The draft proposal provides for four (alternative) transitional rules to mitigate the effects of the deemed disposal:

  1. Roll-over relief mechanism: All hidden reserves and goodwill claims are passed on to the participants in the entity (on a pro rata basis) upon request. This mechanism is available if the participants are subject to a profit-based corporate tax and profits are accounted for according to similar profit determination rules. This means that individuals in principle do not qualify However, it is mentioned that additional structuring can be undertaken to mitigate the effect of this (i.e. interpose an entity that is subject to a profit-based corporate tax). This mechanism in principle is only relevant for the limited partners as a Dutch CV is transparent for Dutch CIT purposes to the extent of the general partner interest under current law. A (full) deferral is available upon request by the CV and its partners together, provided the CV and (all) its partners reside in EU/EEA jurisdictions (an exception may apply under circumstances). Under circumstances (NOLs, etc.) specific additional conditions may apply.
  2. Share merger: Partners in the CV that are subject to individual income tax can opt to contribute their interests in the CV into a EU/EEA holding company in exchange for shares in that entity provided the partner(s) in the Dutch CV record their interest in the holding company at the same value as the interest in the Dutch CV directly before the contribution. This choice can be made by each partner separately or through one combined holding company. The share merger should be performed ultimately on 31 December 2022 (or earlier if the Dutch individual income tax return for the financial year 2021 is filed before that date) and has retroactive effect to 1 January 2022.
  3. Installments: Upon request, the Dutch CIT or individual income tax due as a result of the deemed disposal and cessation may be paid in equal installments spread over ten years. Under a specific provision it is ensured that no collection interest is due on the installments. The installment system ends as soon as the taxpayer files for bankruptcy or enters into a state of delay of payments (‘schuldsaneringsregeling voor natuurlijke personen’).
  4. Roll-over relief mechanism if a natural person makes available assets to an affiliated entity: Certain qualifying limited partners of a Dutch CV that currently qualifies as a taxpayer for Dutch CIT purposes and ceases to exist effective from 1 January 2022, can pass on individual income tax claims on assets made available to the Dutch CV, if the assets are continued to be used in the (subsequent) business enterprise.

Dutch FGRs

Similar to Dutch CVs, the unanimous consent requirement will also be revoked for Dutch FGRs. At the same time, a new definition is proposed for the FGR. First of all, this applies to Dutch FGRs traded on a regulated stock exchange and Dutch FGRs in which the participating interest is commonly subject to a repurchase obligation. Such a repurchase obligation exists if it follows from the terms and conditions of the fund agreement and the repurchase obligation is habitually exercised. As a result of the repurchase obligation linked to the fund agreement, a Dutch FGR can essentially choose whether it is liable for Dutch CIT or whether it is treated as transparent for tax purposes. So-called family funds (including those that anonymize the (family) participants) are explicitly excluded from the scope of the FGR definition. Family funds that currently qualify as FGR and fall within the scope of this draft proposal will qualify as transparent for tax purposes from 1 January 2022.

Contrary to Dutch CVs, the proposal does not include transitional law for Dutch FGRs. Hence, all Dutch FGRs that are currently qualified as non-transparent for Dutch tax purposes and do not meet the criteria will be deemed to have disposed their assets and liabilities and to have ceased their activities in the Netherlands. Similarly, these Dutch FGRs will also no longer qualify as a withholding agent for outbound dividends, interest and royalties. As there is relative flexibility in terms of effectively choosing to be treated as a (non-)transparent Dutch FGR for Dutch tax purposes, its practical impact may be limited.

Foreign incorporated entities

Two methods for the Dutch tax qualification of foreign legal entities in specific circumstances are proposed: the symmetrical method and the fixed method. The symmetrical method provides for a solution for situations in which an entity incorporated under foreign law and established abroad (and which is not comparable to a Dutch legal form) has an interest in a Dutch corporate taxpayer or if a Dutch corporate taxpayer has an interest in such foreign company. Based on the symmetrical method, the Netherlands follows the treatment for corporate income tax purposes by the state of incorporation of the foreign entity (non-transparent and independently taxable or transparent and not independently taxable). The fixed method will be used if an entity is incorporated under foreign law and is established in the Netherlands (and which entity is not comparable to a Dutch legal form). In that situation, the entity is always considered a domestic taxpayer for Dutch CIT purposes. This aims to ensure that less qualification differences arise. These rules only apply in the specific circumstances as defined and do not apply to foreign entities whose legal form is comparable to a Dutch legal form.

Closing remarks

In the context of international taxation the Dutch tax qualification rules have long been the ‘odd one out’. This has resulted in complexity and (unwanted) hybrid mismatch situations. From that perspective, the proposed rules are a welcome change that may help simplify the Dutch tax system. The proposal as it currently stands also gives rise to ambiguity on several important elements that should be clarified in further parliamentary proceedings. This includes, inter alia, a clarification on the following elements:

  • The interaction of the proposed rules with the existing Decree of the Dutch State Secretary of Finance regarding the Dutch tax qualification of foreign partnerships;
  • The absence of transitional law for Dutch FGRs (in particular so-called family funds) that do not meet the requirements to qualify as a Dutch taxpayer under the proposed rules;
  • The possible tax consequences of situations that will be viewed differently from a Dutch tax perspective due to this proposal (e.g. a participation held by a foreign limited partnership in a Dutch BV or a participation held by a Dutch BV in a foreign limited partnership); and
  • The interaction with the consultation paper on the tax liability measure for reverse hybrids.
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