Important Dutch tax developments for the Investment Management industry

New Dutch tax entity classification rules will enter into force as per 2025, which in principle seek to align the Dutch classification rules with international standards, but have in turn created new uncertainty with respect to the tax classification of a Dutch mutual fund and foreign equivalent legal forms. For a detailed overview of changes, see our Quoted and website post.

In this overview, we will touch upon the changes to the classification of (foreign) limited partnerships and the classification of the Dutch mutual fund and foreign equivalent legal forms. Under the new rules, foreign entities similar to a Dutch mutual fund could classify as non-transparent if the foreign entity is a fund within the meaning of article 1:1 of the Dutch Financial Supervision Act (Wft), established for collective investment with a normal portfolio management strategy, and has freely tradeable units. If a foreign limited partnership is also similar to a Dutch mutual fund, the classification as a mutual fund will precede the classification as a limited partnership, which could result in a change of the classification.

The Dutch government proposes to bring the Dutch implementation of the earnings stripping rule as included in the EU Anti-Tax Avoidance Directive (ATAD) more in line with the implementation of other EU states by increasing the EBITDA-cap from 20% to 24.5%. In addition, the Dutch parliament has decided to not abolish the EUR 1 million threshold for real estate companies which is good news for the real estate investment industry. These changes still require approval by the Dutch Senate, with voting expected in mid-December.

Under the current rules, entities that are ‘acting together’ can be considered ‘related’ for purposes of the conditional withholding tax even if individual entities only hold a minimal interest in the Dutch entity. The Dutch government has recognized that this scope is too broad and that it can lead unintended consequences.

To resolve this, the Dutch government has adopted an amendment to replace the ‘acting together’-concept with the concept of ‘qualifying unity’ as per 2025. It is expected that only structures that are (partially) set up to avoid the conditional withholding tax will be in-scope of this new definition.

On 22 March 2024, the Supreme Court published a ruling regarding the Dutch anti-base erosion rules and abuse of law-doctrine. In this ruling, the Supreme Court stated that (acquisition related) shareholder loans in a genuine PE structure are not (per se) abusive and therefore may still generate tax-deductible interest expenses.

In addition, on 4 October 2024, the European Court of Justice ruled that that the Dutch anti-base erosion rules are not in breach of EU law, as it pursues the legitimate objective of combating tax fraud and tax evasion. In this ruling, the Court clarified that a loan ‘devoid of economic justification’, even though subject to at arm’s length conditions, can still be artificial and the interest expenses could therefore be limited in deduction by Dutch tax law.

In practice, we see more and more discussions with the Dutch tax authorities regarding the tax deductibility of interest expenses on intragroup loans, especially in the real estate investment industry. Consequently, the judgement of the Court means that TP-documentation and economic justification of intragroup debt are becoming increasingly important.

As of 2025, the concurrence exemption for share deals of real estate companies owning real estate used for VAT exempt purposes will be abolished. The Dutch government intends to create a level playing field between asset deals and share deals with respect to the acquisition of newly built real estate. As this measure could lead to overkill, a new 4% RETT-rate will be introduced for share deal transactions.

2026 will see a decrease of the RETT-rate for (non-owner occupied) residential real estate – from 10.4% (2025) to 8%. This rate will only apply if at the time of acquisition, the acquired real estate is ‘in its nature fit for residential purposes’. Consequently, already built real estate that is transformed into residential real estate cannot apply the lower 8%-rate.