Key Takeaways: On February 5, 2024, the Netherlands has published a Draft Decree (“Draft Decree”) with qualification rules for non-Dutch entities and partnerships. The Draft Decree provides further guidance following announced legislation last year, which is expected to enter into force as of January 1, 2025. It is recommended to timely review the potential impact to US - Netherlands tax structures.

A list of non-Dutch entities (“List") and their classification for Dutch tax purposes is published as annex to the Decree. The List is currently limited but may potentially be extended during the legislative process. Based on the List, a Delaware LLC and Ohio LLC will be treated as a taxpayer (non-transparent) for Dutch tax purposes, whereas a Delaware LP will be treated as transparent for Dutch tax purposes. For all other US entities, it is expected that it should be reviewed whether the US legal form is comparable to a Dutch legal entity form. If sufficiently comparable, it follows the qualification for Dutch tax purposes of such legal form, if not comparable it will follow the US tax qualification. 

Who does it affect?

The new classification rules could affect US multinationals that have activities and/or entities in the Netherlands, and that have a tax structure with entities such as (US) LLCs, (US) LPs or Dutch CVs.

What is the purpose?

It is proposed to amend the Dutch qualification rules for Dutch and non-Dutch legal entities and partnerships to align these rules with international standards, so that among others the number of hybrid mismatches under ATAD2 will be decreased.

When does it go into effect?

The new provisions are proposed to be effective January 1, 2025. However, in order to mitigate certain adverse tax consequences of the classification changes, as of January 1, 2024, specific rollover, grandfathering  and deferral tax facilitation measures may apply, subject to meeting specific conditions.

What are the potential Dutch tax consequences for non-Dutch entities?

The potential Dutch tax consequences in respect of non-Dutch entities established outside the Netherlands depend on among others the ownership structure, the legal form, their country (or state) of residence and tax treaty eligibility. Summarized it may have the following consequences.

US entities included in the List 

As mentioned above, based on the List, a Delaware LLC and the Ohio LLC would continue to qualify as comparable to a Dutch private company with limited liability (BV), irrespective of a check the box election for US tax purposes or if the LLC has a single member. Therefore, no changes are expected for Dutch tax purposes for these entities.

Based on the List, a Delaware LP will as per January 1, 2025 qualify as transparent for Dutch tax purposes, which may be a change to the current qualification where Delaware LPs often qualify as non-transparent for Dutch tax purposes. It is therefore recommended to further review the potential tax consequences.

US entities not included in the List

For LLCs and LPs formed under the laws of other US states (not Delaware or Ohio) and resident of the US for tax purposes, it should be reviewed whether the US legal form is sufficiently comparable to a Dutch legal entity on the basis of ‘essential characteristics’. Should it be sufficiently comparable to a BV (private company with limited liability), it will also be treated as non-transparent for Dutch tax purposes. Should it be sufficiently comparable to a Dutch limited partnership, it will be treated as transparent for Dutch tax purposes. Should it not be sufficiently comparable, or be comparable with both, the Dutch tax qualification will follow the US qualification. In that regard guidance on the Draft Decree explicitly mentions that a US LLC which does not have a share capital divided into shares in accordance with Dutch civil law does not preclude this LLC from being sufficient comparable to a Dutch BV.

A requalification may impact the application of the Dutch non-resident substantial interest rules on US shareholders, Dutch dividend withholding tax, the conditional withholding tax on interest, royalties, and dividends, ATAD 2 rules (hybrid mismatches), and the Dutch participation exemption.

As it is not uncommon for US LPs in an ownership structure to currently be treated as non-transparent for Dutch tax purposes, the impact of a potential requalification should be reviewed. In addition, for structures that include US LLCs, we recommend reviewing the qualification under these new rules to determine the Dutch tax consequences hereof.

What actions could US multinationals take?

All US- Netherlands structures which include US LPs, US LLCs or Dutch CVs should be reviewed. The requalification may impact the application of the Dutch non-resident substantial interest rules on US shareholders, Dutch dividend withholding tax, the conditional withholding tax on interest, royalties, and dividends, ATAD 2 rules (hybrid mismatches), and the Dutch participation exemption.

In case of questions, please feel free to reach out to RSM 

 

 

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[1] For Dutch Open CVs and similar US partnerships