Following parliamentary discussions on the implementation of the UCITS IV Directive, the implementation bill has been amended to allow for two changes to Dutch tax law.
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First proposed change relates to the tax residency of UCITS. Based on the UCITS IV Directive, a fund manager resident in an EU Member State will be allowed to manage UCITS established and supervised in another Member State1 (manager passport). Especially for a large fund manager that manage several UCITS that are not all based in the same Member State, this EU manager passport provides for economy of scale benefits and increased flexibility as it will no longer be required to establish a fund manager in each jurisdiction in which a UCITS is managed.
Current Dutch tax law provides that the place of residence of an entity will be considered taking into account all facts and circumstance. Place of effective management is an important factor in determining the place of tax residency. If a UCITS that is resident in another Member State is effectively managed by a fund manager resident in the Netherlands this could result in a double tax residency and subsequently double taxation for the UCITS.
The proposed change to the Dutch General Tax Act (Algemene Wet Rijksbelastingen) provides that a UCITS established and supervised in another Member State will not be (deemed) tax resident in the Netherlands even if the UCITS is effectively managed in the Netherlands by a Dutch fund manager.
The Dutch fund manager must receive and report an at arm’s length remuneration for its management activities from the UCITS established in another Member State. Only this remuneration received by the Dutch fund manager will be taxable in the Netherlands.
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Relaxation Dutch fiscal investment institution (FBI) requirements for foreign feeder UCITS
UCITS are required to invest taking into account the principle of risk spreading. As of 1 July 2011 a UCITS is authorised to invest at least 85 per cent of its assets in another UCITS. This enables master-feeder structures. Also a master UCITS must adhere to the risk spreading principle, a feeder UCITS investing in a master UCITS therefore indirectly complies with this requirement. Multiple feeder UCITS may invest in one master UCITS.
Due to the beneficial Dutch tax treaty network, it is expected that a substantial number of Dutch master UCITS will take the form of a FBI (subject to tax but at the rate of 0 per cent). Under current Dutch tax law, one of the requirements for the application of the FBI regime is that the shares in the FBI cannot be held for 45 per cent or more by one other entity, unless that other entity is also a FBI or such other entity is not subject to taxation. If a foreign feeder UCITS is subject to taxation it cannot hold more 45 per cent or more in the Dutch master FBI. This is considered to be prohibitive.
In order to stimulate the use of the Dutch FBI regime for master-feeder structures, it is now proposed that foreign feeder UCITS’ may hold an interest larger than 45 per cent in Dutch FBI master UCITS’, without jeopardising the beneficial Dutch FBI regime applicable to the Dutch master UCITS.
It is proposed that the changes to Dutch tax law, together with further changes to regulatory laws implementing the UCITS IV Directive, become effective on 1 July 2011.
- This includes the European Economic Area countries.
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