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The Qualification of Foreign Entities Clarified in Updated Annex

Recently, the Dutch Ministry of Finance has published an updated annex (Annex) to the decree on the qualification of foreign entities dated 21 December 2009 (Decree).

The Decree provides the criteria that taxpayers have to apply for to determine whether entities qualify as opaque or transparent from a Dutch corporate tax perspective. Taxand Netherlands discusses how the Annex will aid tax planning.

Under Dutch tax law a foreign entity can qualify as opaque or transparent. This distinction is relevant for the tax treatment of the Dutch resident taxpayer that is being held by or holds an interest in a foreign entity. For purposes of qualifying foreign entities as opaque or transparent, the Decree distinguishes corporations from partnerships. Corporations always qualify as opaque while partnerships are, in principle, treated as tax transparent unless their shares are freely transferable.

The list as laid down in the Annex is of an indicative nature only. Taxpayers should assess the status of the foreign entity from a Dutch tax perspective on a case-by-case basis. A foreign entity's status for Dutch corporate tax purposes may be influenced by the laws of the foreign entity's jurisdictions as well as the foreign entity's articles of association and bylaws. To obtain clearance in advance on the qualification from a Dutch corporate tax perspective, a taxpayer can request a binding ruling from the Dutch tax administration.

Discover more: Updated Annex published for the qualification of foreign entities

Your Taxand contact for further queries is:
Marc Sanders
T. +31 20 757 09 05

Taxand's Take

The Annex lists a substantially larger amount of foreign entities compared with the previous annex and therefore the Annex provides for an indication with respect to more companies. Structures which use mismatches between the qualification under Dutch and foreign tax law are frequently used and remain an interesting tax planning tool. To ensure that structures which utilise such mismatches remain tax-efficient, the qualification of foreign entities from a Dutch tax perspective in current structures should be monitored on an on-going basis.

Taxand's Take Author

Marc Sanders
Taxand Board member