The competent authorities of Norway and the Netherlands reached a mutual agreement by way of a ‘Competent Authority Agreement’ on the application of the tax treaty between Norway and the Netherlands to investors in so-called Dutch closed funds for mutual account (fonds voor gemene rekening)1 (hereafter FGR).
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Dutch fund for mutual account
A FGR is commonly used to act as an asset pooling investment vehicle for domestic and foreign pension funds and other investors. It is a contract, usually called “conditions of management and custody” entered into by a custodian and the investment manager. A FGR is somewhat comparable to a unit trust as known in common law jurisdictions, although it is neither a body corporate nor a trust, and has no legal personality. The custodian, often a special purpose vehicle, holds the assets in custody (legal title), whereas the investors are the beneficial owners. An investment manager, which can be any (foreign) legal entity, is appointed to manage the assets on behalf of the investors. The investors are liable only for their commitment (as contractually agreed).
A FGR has the advantage of the flexibility to draft the provisions of the agreement governing the fund. Dependent on the terms and conditions of the fund agreement, a FGR can either be treated as taxable (for example, “open”) or as tax transparent (for example, “closed”)2 for Dutch tax purposes. In broad terms, a FGR is treated as closed if either (i) the admission and substitution of investors requires the express prior written consent of all investors, or (ii) the participations can only be redeemed by the fund (“open-ended investment fund”). If this is the case, prior consent of the other investors is not required. A “closed” fund may in principle freely issue new participations, i.e. without the prior consent of the participants.
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The agreement between Norway and the Netherlands applies to closed FGRs (tax transparent for Dutch tax purposes) within the meaning of the Dutch Decree of 11 January 2007. Norway and the Netherlands agreed to treat these closed FGRs as tax transparent for tax treaty purposes. Since a closed FGR is tax transparent, all income and gains derived by the fund from fund assets are allocated to the investors in the closed FGR in proportion to their participation in the fund.
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Request for application of tax treaty benefits on behalf of participants
A closed FGR which is established in the Netherlands and which receives income arising in Norway may itself, represented by its fund manager or its depository, in lieu of and instead of the investors in the closed FGR, claim the benefits of an agreement for the avoidance of double taxation to which Norway is a party and which is applicable to those investors on behalf of those investors in the closed FGR.
Such claims may be subject to enquiry and, where requested, a fund manager or depository shall provide relevant information which may include a schedule of investors and allocated income relevant to a claim.
A closed FGR may not make a claim for benefits on behalf of any investor in the closed FGR if the investor has itself made a claim for benefits in respect of the same income. If a closed FGR intends to make a claim for benefits on behalf of an investor, the fund manager or its depositary should clearly communicate this to the investor to avoid duplicate claims in respect of the same income.
The mutual agreement with Norway has already been signed on 19 January 2012, but has only been made public by way of press release on 12 March 2012. It will be subject to regular review.
In June 2010, the Netherlands entered into a similar agreement with Canada and in September of that year with the United Kingdom. Currently negotiations are still ongoing to also come to a ‘Competent Authority Agreement’ with the United States of America.
- Various translations of fonds voor gemene rekening are possible, such as “mutual fund”, “fund for mutual account” or “fund for joint account”.
- The tax term “closed” should not be confused with the commercial term “closed-end” which usually refers to restrictions on the redemption of participations.
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