Are there any Mutual Funds present within your organisation’s group structure that qualify as non-transparent? If so, take into account the proposed changes in transparency rules for Mutual Funds as per 1 January 2025. What will change and how do you prepare for it?
(Non-)transparent Mutual Fund
Under current law, a fund will be considered a non-transparent Mutual Fund under the Dutch Corporate Tax Act if it possesses transferable participation securities. A Mutual Fund that meets this condition is subject to corporate income tax. If, on the other hand, this condition is not met, the Mutual Fund is classified as fiscally transparent. Consequently, the results will be subject to tax at the level of the participants. Participation securities are transferable, if they can be disposed without the consent of all participants (consent requirement).
Alignment current transparency rules with international standards
This consent requirement is not in line with international standards. Therefore qualification differences arise between tax systems. To align the current Mutual Fund transparency rules more closely with the international standards, the government aims to implement a number of changes concerning these rules. These changes are listed below.
Proposal revised transparency rules as per 1 January 2025
Under the proposed measures, the criteria for Mutual Funds will be modified. As a result, a Mutual Fund will only be considered non-transparent for Dutch corporate income tax purposes if:
- The entity qualifies as a regulated (collective) investment fund under the Financial Supervision Act; and
- It possesses transferable participation securities, that can be transferred through means other than solely by redemption by the Dutch Mutual Fund.
As a result of these modifications, it may occur that a previously non-transparent Mutual Fund no longer complies with the new transparency rules and thus will no longer be considered non-transparent. As a result, all assets will be allocated to the participants and will be subject to (corporate) income tax. However, the 2024 transitional law provides three facilities to prevent immediate taxation:
- A roll-over facility of the deferred tax claims on hidden reserves, tax reserves and goodwill;
- A share merger facility with a temporary exemption from transfer tax, allowing participants subject to income tax to transfer their participation securities to a (new or existing) holding company in exchange for shares; and
- A payment facility that allows payments in instalments up to 10 years, in case a taxpayer does not fulfil the conditions to apply the above facilities. Under conditions, the immediate payment may be paid in instalments of 10 years.
What is the best thing to do now?
The 2024 Tax Plan contains several changes regarding the transparency rules for Mutual Funds. Therefore, we recommend to analyse your group structure to identify Mutual Funds. If you identify a Mutual Fund in your structure, we recommend analysing whether this Mutual Fund still qualifies as non-transparent under the modified transparency rules. If not, we advise to assess the three facilities to prevent immediate taxation when this Mutual Fund becomes transparent. We are more than happy to assist you with this!
Contact one of our specialists.
