Simplified transparency requirements Dutch limited partnerships

Friday 19 Feb 2016

The Dutch State Secretary of Finance has issued amended decrees on the Dutch tax treatment of Dutch limited partnerships (LPs) and funds for joint account (FGRs). These decrees are effective as of January 1, 2016. Dutch LPs and FGRs are frequently used as investment funds due to their flexibility and tax efficiency.

The key change is the simplification of the requirements to be met in order to secure a Dutch tax transparent treatment of master-feeder structures involving LPs or FGRs. Under the new rules only the consent of the partners in the relevant master or feeder is required, where previously the transfer or issue of partnership interests required the consent of all partners of both the master and feeder. In order to benefit from this simplification, the simplified consent should be highlighted in the fund documentation or the Dutch tax authorities should be notified that the fund has elected to apply the simplified consent requirement.

In contrast to Dutch public and private limited liability companies that are subject to Dutch corporate income tax (CIT), LPs and FGRs may be treated as tax transparent under certain conditions. With regard to its limited partners, an LP is only treated as transparent from a Dutch CIT and Dutch dividend withholding tax perspective if the admission and replacement of limited partners is subject to the prior approval of all other partners, both general and limited (the consent requirement). An FGR is treated as transparent if (i) the consent requirement is satisfied or (ii) if participations may only be redeemed to and re-issued by the FGR itself (the redemption alternative).

The Dutch State Secretary of Finance expressed his views in two previous resolutions on the application of the consent requirement and the redemption alternative to master-feeder structures, that all participants in the master are considered to also be participants in the feeder and vice versa. The State Secretary of Finance had taken the position that in order for the transparency of both entities to be preserved, the unanimous consent of all partners in all participating and underlying entities was required in the case of a new limited partner’s admission to one of the participating transparent entities. This indicated the very strict approach of the Dutch tax authorities in determining when a LP was tax transparent.

The new resolutions introduce a simplified consent requirement for master-feeder structures in order to remove undesired restrictions on the structuring of investments funds in the Netherlands. Admission or replacement of a limited partner in a master or feeder only requires the consent of the general and the limited partners in the relevant entity.

The new resolutions also explicitly allow a FGR that applies the redemption alternative to participate in a LP or FGR that applies the consent requirement, and, vice versa, such LP or FGR to participate in a FGR that applies the redemption alternative.

In addition to the simplification of the consent requirement, the new resolutions provide for leniency for limited partnerships which have (in the view of the Dutch State Secretary of Finance) not duly applied the consent requirement to a transfer of LP and FGR interest by means of a legal merger, demerger, or a transfer by way of a liquidation payment. Leniency is granted under the condition that the prior consent was not withheld deliberately, abusively or repeatedly. Subsequently, the limited partnership should immediately report to the relevant tax inspector and inform the limited partners about the applicability of the requirement to obtain consent.


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