The long anticipated new Dutch entity qualification rules will be implemented as of January 1, 2025. With these new rules, new guidelines are provided to assess how both Dutch and foreign entities should be treated for Dutch corporate income tax purposes. The rules are aimed at preventing hybrid mismatches from arising but can also have other consequences. Mainly, certain entities will no longer be subjected to Dutch corporate income tax and application of the participation exemption can be lost in relation to participations in certain partnerships. In this brief article, we shall discuss a high-level overview of these new rules and their practical impact.

This article was written by Rafi Mardroos and Mario van den Broek. Rafi and Mario are part of RSM International Tax Services Practice with a focus on International Tax.

In the Netherlands, limited partnerships (Dutch CV’s) could either be subject to CIT or be treated as fiscally transparent, dependent on the terms of the partnership agreement. This made the CV very useful for tax planning, giving rise to amongst others the notorious CV-BV structures, whereby profits would flow to the CV which would not be subjected to corporate income tax anywhere. As of 2020, CV-BV structures have been rendered ineffective, through the Dutch anti hybrid mismatch rules, by creating deduction limitations for the BV on payments to the hybrid CV’s. Now, with the new qualification rules, the aim is to prevent hybrid mismatches from arising in the first place. Though the old treatment of CV’s provided flexibility in tax planning, it also created legal uncertainty on the treatment of foreign partnerships. Like CV’s, the treatment of foreign partnerships would also depend on the terms of the partnership agreement. As a result, based on the specific facts and circumstances of each case, foreign partnerships could either be transparent or non-transparent from a Dutch perspective. 

2025 changes to the Dutch corporate income tax act 

As of 2025, the below changes to the Dutch Corporate Income Tax act should be considered:

  • Dutch CV’s will always be treated as tax transparent unless the entity is treated as non-transparent from the tax perspective of its partners. In that case, the CV will be subject to Dutch corporate income tax as a non-transparent entity. 
  • The method to assess the Dutch tax treatment of foreign entities, the legal form comparison method, will be codified into hard law instead of soft law.
  • Foreign entities that bear no similarity to a Dutch legal entity, such as UK LLP’s and Irish ULC’s, will be:
    –    Treated as non-transparent if they are Dutch tax residents. or
    –    Treated in line with the law of the foreign jurisdiction where the entity is resident. 

Practical impact

With the changed treatment of Dutch CV’s, the very nature of how limited partnerships are treated from a Dutch perspective will change. This in turn can impact the Dutch tax position in a multitude of ways. Dutch CV’s are directly impacted. Previously non-transparent CV’s, will cease to be subjected to Dutch tax, shifting taxation liabilities to their partners. On the flip side, legacy CV’s that once were part of a CV-BV structure, will become subjected to tax, creating additional compliance obligations.  

Besides the direct consequences of Dutch CV’s becoming generally tax transparent, there are also significant indirect consequences, especially for the treatment of foreign limited partnerships from a Dutch perspective. Foreign limited partnerships that bear resemblance to the Dutch CV in legal nature, will also be generally treated as transparent entities as of 2025, eliminating the need to review the partnership agreement. Though this creates welcome legal certainty, it can also create adverse tax consequences. Whether an entity is transparent or non-transparent influences the application of many Dutch corporate income tax provisions. For example, participations in limited partnerships that were previously deemed non-transparent from a Dutch perspective, will no longer be in scope of the Dutch participation exemption, as the partnerships become transparent. Additionally, the changed qualification rules can have impact on the application of Dutch withholding taxes and anti-hybrid rules. Furthermore, the tax qualification is relevant for Pillar 2, with transparent entities being subjected to flow through entity rules. 

Next steps

As outlined in the previous paragraph, the difference in treatment of transparent and non-transparent entities is significant and of relevance for the application of many different tax rules. As such, it is important to understand whether the treatment of any group entities will change as of 2025, and if so, what the consequences of these changes are. By doing this before the year 2025 starts, there should still be options to mitigate any unwanted consequences.

RSM is a thought leader in the field of International Tax and global tax policy. We offer frequent insights through training and sharing of thought leadership that is based on a detailed knowledge of global tax reforms, regulatory obligations, and practical applications in working with multinational corporations. If you want to delve deeper into the complexities of international tax policy in a constantly evolving world, please reach out to one of our consultants.