Dear FS professional,
This is our third FS Tax Newsletter for the year, in which we have summarized the most recent tax-related developments of the last two months in the FS sector for you.
This newsletter includes:
- The internet consultation that was launched on the Qualification Policy for Legal Forms Act.
- The Dutch government recently confirmed that, based on the results of an implementation test, the changes to the corporate income tax loss set-off regime can take effect as of January 1, 2022 and that due to State aid risks, the Job‑related Investment Allowance (Baangerelateerde Investeringskorting; BIK) will be withdrawn.
- Tax integrity risks relevant for the banking sector: De Nederlandsche Bank (DNB) (the Dutch central bank) has issued its response to questions asked during a seminar in late 2020.
- Following a Supreme Court judgment in 2020, the Deputy Minister of Finance published a decree on the VAT position of members of supervisory boards and boards of supervisory directors.
- A summary of a CJEU judgment regarding the attribution of the right to levy insurance premium tax to seagoing vessels.
- As for more recent Dutch case law, the Supreme Court ruled that the acquisition of only the legal ownership of shares in real estate legal entities is subject to real estate transfer tax.
- An update on the Relief and recovery package for the economy and labor market, which will remain available in the third quarter of 2021.
- Danish and Indian withholding tax developments following amendments to Danish tax law and Indian case law.
- Lastly, we would like to draw your attention to the pending Implementation Act for the registration of ultimate beneficial owners of trusts and similar legal constructions.
If you would like to know more about the matters addressed in this newsletter please contact us. For other tax-related topics not included in this FS Tax Newsletter, please visit our website.
Niels Groothuizen, Partner, Financial Services Tax Group
Table of Contents
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1. Internet consultation on Qualification Policy for Legal Forms Act
On Monday, March 29, 2021 an internet consultation was launched on the proposal for a Tax Qualification Policy for Legal Forms Amendment Act. This Act is intended to qualify certain legal forms differently as of January 1, 2022 than was previously the case. This is because the current qualification policy often causes international mismatches.
However, as a result of the proposed changes, purely domestic situations in which there are no mismatches will also be affected. This is particularly the case with open limited partnerships (open commanditaire vennootschappen) and mutual funds (fondsen voor gemene rekening). As of January 1, 2022 open limited partnerships will, by definition, be transparent. Whether mutual funds will be open or closed under the new rules, depends on the new legal criteria that will then apply. This may, for example, have implications for existing investment structures in which a fund has the status of fiscal investment institution (fiscale beleggingsinstelling; FBI) or structures that were set up in connection with the coming into effect of the UBO register or in order to invest Box 3 investment capital in Box 2. The consultation proposal thus has a broad impact, with potentially far-reaching consequences.
If a legal form is qualified differently, this will in principle result in tax claims having to be settled. However, transitional rules offer opportunities for avoiding the settlement of these claims. Sometimes a restructuring is then required, which must take place in 2021. This may mean that there is little time left if the final bill is announced later this year, while the commencement date remains unchanged.
For more information on this matter, please contact Michael van Gijlswijk, Otto Mares, Fred van Horzen, Annemiek van Dijk, Jan-Pieter van Niekerk or Maarten Merkus.
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2. Changes to corporate income tax loss set-off as of January 1, 2022, BIK withdrawn
On Friday, May 28, 2021 the caretaker government announced that, on the basis of the awaited results of the implementation test, the changes to the corporate income tax loss set-off can take effect as of January 1, 2022. It was also announced that the Job‑related Investment Allowance (Baangerelateerde Investeringskorting; BIK) will be withdrawn, because it cannot be ruled out that the measure will be qualified as unlawful State aid. Instead of the BIK, the contributions for the General Unemployment Fund (Algemeen Werkloosheidsfonds; ‘AWF contributions’) will be reduced.
For more information on this matter, please follow this link or contact Michael van Gijlswijk, Arie de Groot or Fred van Horzen.
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3. Dutch Central Bank answers questions following seminar on tax integrity risks
On April 1, 2021 De Nederlandsche Bank (DNB) (the Dutch central bank), published answers to questions that were asked during a webcast organized by DNB on December 9, 2020. Although the document provided does not introduce new policy, it provides some welcome clarifications. We have summarized the answers provided.
While the Money Laundering and Terrorist Financing (Prevention) Act does not prescribe that branches of EEA credit institutions should have an (extensive) tax integrity risk appetite, this Act requires them to perform an analysis of the risks of involvement with money laundering (and terrorist financing). This includes involvement in tax evasion. DNB refers to the predetermined risk appetite of a bank as being leading in the decision of a bank to refuse to provide services to clients that use tax-driven structures, even if these are within the boundaries of the law. DNB expects that, alongside the risk appetite, individual risk assessments will still take place and that some client groups will not be categorically excluded. Unilaterally terminating a client relationship could incur liability risks for banks. DNB recognizes that the largest tax integrity risks are run in the corporate banking and private banking sectors. However, this does not mean that there are no relevant risks in other banking sectors.
DNB is not responsible for monitoring whether banks comply with DAC6, the European Directive on Administrative Cooperation. DAC6 should be seen separately from the obligations of banks under anti-money laundering rules.
As for external advice, banks are permitted to use external, independent tax opinions in order to determine whether the risks of a given structure are acceptable. However, banks remain ultimately responsible and must evaluate these opinions in the light of the scope of the advice, applicable period and any reservations made in the advice. DNB does not believe that banks should assess whether minimum substance requirements are met by clients; however, banks should assess the purpose and nature of the business relationship and ownership and control structure. According to the DNB, banks are responsible for ensuring employees are sufficiently knowledgeable on tax matters so that they can recognize (indicators of) tax integrity risks. Insofar as the necessary knowledge is unavailable internally, external parties should be consulted.
Finally, the document provides information on the collaboration between DNB and the Dutch tax authorities to combat tax evasion. Although DNB and the Dutch tax authorities are separate institutions with separate tasks, it is possible that under certain circumstances information is shared between the two organizations.
For more information on this matter, please contact Niels Groothuizen or Michèle van der Zande
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4. No VAT obligation for members of Supervisory Boards, Boards of Supervisory Direct
On May 6, 2021 the Deputy Minister of Finance published a decree on the VAT position of members of supervisory boards and boards of supervisory directors, as well as members of complaints advisory committees and review, dispute and comparable committees (hereinafter: supervisory officer(s)). The reason for this was the judgment rendered by the Court of Justice of the European Union on June 13, 2019 in the IO case and the Supreme Court judgment of June 26, 2020.
In this decree, the Deputy Minister of Finance takes the position that the individual supervisory officers do not qualify as a VAT taxable person if and insofar as they are only jointly, thus along with the other supervisory officers of, for example, the Board of Supervisory Directors, authorized to take decisions/monitor activities. The individual supervisory officer therefore does not perform their tasks in their own name or under their own responsibility. This means that as of May 7, 2021 supervisory officers who are only jointly responsible for their tasks or can only take joint decisions are no longer a VAT taxable person for the performance of these tasks. Therefore, they can no longer charge VAT on the fee they receive for performing these tasks and thus also have no VAT recovery right for the costs associated with the performance of their tasks.
The decree has retroactive effect to June 13, 2019, the date of the judgment by the Court of Justice of the European Union in the IO case.
For more information on this matter, please follow this link or contact Leo van Loo, Annete Pol-Habing or Gert-Jan van Norden.
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5. CJEU: Member State registration ownership of vessel may levy insurance premium tax
On April 15, 2021 the Court of Justice of the European Union (‘CJEU’) rendered judgment in The North of England P&I Association Ltd. case (case no. C-786/19). The CJEU ruled that the Member State where seagoing vessels are registered in the ownership register may levy insurance premium tax. According to the CJEU, this is no different if a vessel (temporarily) sails under the flag of another country. This is in accordance with Dutch rules but deviates from the practice in several other countries. This judgment is not only important for the insurance of seagoing vessels, for which an exemption applies in the Netherlands, but also for the insurance of other vessels (such as inland barges and recreational craft), which are subject, as starting point, to 21% insurance premium tax in the Netherlands.
For more information on this matter, please follow this link or contact Gert-Jan van Norden, Irene Reiniers or Jochum Zutt.
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6. The acquisition of only the legal ownership of shares in real estate legal entities is subject to real estate transfer tax
On Friday, April 9, 2021 the Supreme Court ruled that real estate transfer tax is payable on the acquisition of shares in a ‘real estate legal entity’ (onroerendezaakrechtspersoon), even if this concerns only the acquisition of the legal ownership of the shares and is not accompanied by any economic interest in the shares and/or the underlying real estate. The Supreme Court based its conclusion on a formal interpretation of the term ‘interest’ in the Legal Transactions Taxation Act (Wet op belastingen van rechtsverkeer) and thus ruled differently to the Court of Appeals ‘s-Hertogenbosch, which, on January 24, 2020, had accorded an economic meaning to the term ‘interest’.
For more information on this matter, please follow this link or contact Paul Zijlstra, Willeke Tigchelaar and Han Leijten.
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7. Relief and recovery package for the economy and labor market also available in the third quarter 2021
On May 27, 2021 the caretaker government (hereinafter: the government) announced in a letter sent to the Lower House of Parliament that it intended to extend the current relief and recovery package for the economy and labor market by three months as of July 1, 2021. This means that the relief package will also be available in the third quarter of 2021.
The extension of the relief package means, among other things, that the NOW (Temporary emergency bridging measure to retain jobs; Tijdelijke noodmaatregel overbrugging voor behoud van werkgelegenheid) and the TVL (Overhead Compensation SMEs; Tegemoetkoming Vaste Lasten mkb), will also be available to businesses in the third quarter of 2021. In addition, the government intends to set up a generous payment arrangement for accrued tax debts, which will be broader than that proposed several months ago (see our memorandum of January 22, 2021).
For more information on this matter, please follow this link or contact Michael van Gijlswijk.
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8. Proposed changes to Danish tax rules for investment funds, pension funds and foundations and withholding tax refund opportunities; Indian case law on Most Favoured Nation clause in tax treaty with the Netherlands
Since the last FS Tax Newsletter, there have been tax developments in India and Denmark that could be relevant for withholding tax reclaim purposes.
Denmark: based on a notification from the EU Commission from 2016 and a letter of formal notice from 2020, Denmark has concluded that the rules on Danish withholding tax on dividend paid to non-resident charitable and other non-profit foundations are in conflict with the EU rules on the free movement of capital. Danish self-governing institutions (not subject to the Danish Act on Taxation of Foundations) are exempt from tax on dividends from Danish companies whereas non-resident foundations are subject to Danish withholding tax on Danish dividends.
In order to ensure alignment with EU law, it has been proposed that foreign charitable and other non-profit foundations should be exempt from tax on dividends from Danish companies and as such, be subject to the same tax relief as comparable Danish domestic self-governing institutions.
India: Recently, the Delhi High Court rendered judgment in a case concerning the eligibility to a reduced tax rate on payment of dividend in light of the Most Favoured Nation (MFN) clause contained in the protocol to the India-Netherlands tax treaty. The High Court held that India is entitled to withhold a 5% reduced treaty rate on dividend income, as agreed by India in subsequent tax treaties (with Slovenia, Colombia and Lithuania). In light of the MFN clause, this lower rate would apply.
For more information on this matter, please contact Jeroen Bruggeman or Bastiaan Blom.
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9. Implementation Act for the registration of ultimate beneficial owners of trusts and similar legal constructions submitted to Dutch Parliament
On April 26, 2021 the bill to implement a general register of ultimate beneficial owners (UBOs) of trusts and similar legal structures was submitted to the Dutch Parliament. This publicly accessible register will contain certain personal information on the UBOs of these trusts and trust-like legal structures. This Implementation Act is part of the obligation of the Netherlands to implement the Fourth European Anti‑Money Laundering Directive (AMLD4).
Alongside this draft bill, an Explanatory Memorandum was published and submitted to the Dutch Parliament. From this document it follows that not only traditional Anglo-American trusts fall under these new rules, but similar Dutch vehicles could also require registration in the register. To this extent, the Explanatory Memorandum explicitly states that this will, in any case, include Dutch mutual funds (fondsen voor gemene rekening). Some of the responses received on the draft Explanatory Memorandum argued that this also includes investment institutions and institutions for collective investment in securities (UCITS) in the form of a mutual fund, but that this is undesirable because it creates a difference between investment institutions and UCITS that are set up as a legal entity and investment institutions and UCITS that do not have a legal personality. However, with the entry into force of the Implementation Act on the registration of UBOs of companies and other legal entities, legal entities are also obliged to register information about their UBOs. As a result, investment institutions and UCITS set up as mutual funds as well as investment funds and UCITS set up as legal entities will have to register their UBOs in a central register. An important difference between the Act covering legal entities and the now-discussed Act regarding trusts and trust-like legal constructions is that the bar to qualify as UBO is lower for the beneficiaries of trusts and similar legal constructions. While as a main rule, an individual is required to hold a stake of at least 25% in a Dutch legal entity, there is no such minimum requirement for trusts. For Dutch similar structures, this means that all beneficiaries of mutual funds will in principle have to be registered as UBOs in this register. In the light of feasibility, the Explanatory Memorandum states that it is looked at to limit the registration requirement in case there is a large group of UBOs, provided that there is sufficient regulatory control.
For more information on this matter, please contact Jennifer Evers or Bob Adrichem.
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