Netherlands: Consultation document on proposed changes to open limited partnership and foreign legal forms for tax purposes (Update)

In brief

Important Update

The intended change described in our alert was initially planned to be part of the Tax Plan 2022, with an intended effective date of 1 January 2022. However, due to the many substantive responses during the internet consultation period of the draft proposal, the Dutch State Secretary for Finance has decided not to include the bill in the Tax Plan 2022, but to submit it as a separate bill at the end of 2022. The proposed amendments will therefore be postponed to a later (yet to be confirmed) date. The most likely new date at which the law could enter into force (if adopted) would be 1 January 2023 although a later date would also be possible. An earlier date does not seem likely.

On 29 March 2021, the Dutch Ministry of Finance published a consultation on legislative changes to the taxation of open limited partnerships ("Open C.V.") and mutual funds ("fgr").

In addition, the consultation document comprises of policy changes regarding the qualification  of foreign legal forms. The consultation period will end on 26 April 2021 with the legislative proposal planned to come into effect from 1 January 2022, if adopted.


In 2020, the Anti-Tax Avoidance Directive II (ATAD II) introduced the anti-hybrid mismatch legislation. According to the Dutch Ministry of Finance, the current Dutch policy on the tax qualification of foreign legal forms is no longer compatible with the updated anti-mismatch legislation. A policy amendment has thus been proposed. At present, Open C.V.s are considered opaque and therefore taxable in the Netherlands[1], while other jurisdictions may consider the Open C.V. as transparent. This could lead to hybrid mismatches.

The aim of the draft proposal is to reduce these hybrid mismatches by removing the cause thereof. Therefore, according to the proposals set out in the draft legislation, all C.V.s will be considered tax-transparent. This means that Open C.V.s will no longer be independently taxable for corporate income tax purposes and will no longer have a dividend withholding tax obligation.

Furthermore, the draft proposal seeks to amend the definition of the open fgr. While the draft proposal seeks to maintain the difference in tax qualification of an "open" or "closed" fgr, the amendment to the legal definition aims to provide more clarity and certainty on the tax qualification of a fgr.

Current status

Current tax qualification of Dutch C.V.s

Under current rules, the Netherlands has acknowledged two types of C.V.s for tax purposes:

  1. The tax transparent C.V. ("Closed C.V.")
  2. The Open C.V. that is opaque for tax purposes

A C.V. is a partnership between one or more general partners and one or more limited partners. The partners can be natural persons or legal entities. The difference between the Open and the Closed C.V. relates to the consent requirement.

In the case of a Closed C.V. express permission for accession or succession to the partnership needs to be obtained from all partners, both general and limited partners. For an Open C.V. this consent is not required.

An Open C.V. is opaque and subject to corporate income tax for the profit attributable to the limited partners. The profit of the Open C.V. that is attributable to the general partner(s) is subject to income taxation at the level of the general partner itself.

A Closed C.V. is transparent and not subject to corporate income taxation. The profit of the C.V. attributable to both the general partner(s) and limited partner(s) is taxed at the level of the partner.

Current tax definition of fgr

A fgr is a fund in which participants jointly invest their assets. A fgr can also be qualified, for tax purposes, as open or closed. A fgr is open if the certificates of participation are freely transferable.

A fgr is closed for tax purposes if the certificates of participation can only be transferred with consent from all interested parties.

Proposed changes

 Change to the tax qualification of Open C.V.s

The draft legislation proposes that the qualification of an Open C.V. will cease to exist as of 1 January 2022. According to the proposals set out in the draft legislation, all C.V.s will be considered tax-transparent, regardless of any consent requirement. This means that an Open C.V. will no longer be independently taxable for corporate income tax purposes and will not have a dividend withholding tax obligation.

From a Dutch tax perspective, limited partners will now be taxed directly on their interest in the Open C.V. General partners will not be affected by the change, as the C.V. was already transparent towards the general partner.

Transitional rules are included in the draft legislation outlining that an existing Open C.V. will be deemed to have transferred all assets to its limited partners at their fair market value immediately before its opaque status ends on 31 December 2021. The final settlement includes an assessment of corporate income tax on the capital gains on any assets deemed transferred.

The draft legislation seeks to prevent an unnecessary tax burden of the limited partners by proposing the following four measures to limit any tax burdens as a result of ending the corporate income taxpayer status of the Open C.V.:

  • Rollover facility: If the conditions are met the limited partners are allowed to take over the tax claims on all untaxed gains and reserves on the assets deemed transferred, upon request. In that case, the Open C.V. is not required to settle tax claims on capital gains or to make a final settlement of a tax claim. This option is only available if all partners are resident in a Member State of the EU or the EER. If one partner is not resident in the EU or EER, the rollover facility is not available to all partners. If such rollover is available, the assets of the C.V. will be transferred to the balance sheet of the respective limited partners, in proportion to their respective partnership interest. Furthermore, sufficient assurance to safeguard the future tax claim needs to be provided by each partner.
  • Share merger option: A limited partner can pass on the tax claims in relation to its interest in the Open C.V. to a new holding entity resident in the EU or EER in exchange for new shares in that new holding entity. The capital gain can be passed to the newly issued shares in the holding entity, subject to certain conditions. The shares in the new holding entity must carry the same value as the interest held in the Open C.V. This option can be opted for by each limited partner separately or through the application of a single holding company.
  • Payment in installments: Upon request, the resulting tax debt can be paid without interest over a 10-year period in 10 equal installments.
  • Rollover facility for provision of assets: limited partners can rollover their tax claims regarding the assets provided to the Open C.V. under certain conditions.

Change to fgr

The draft legislation acknowledged the necessity of the open and closed fgr and proposes to keep both variants. However, it proposes to change the definitions of open and closed. If the proposal is adopted, a fgr will be only be open if the certificates of participation are traded on a regulated market (as defined in art. 1:1 Wft) or a comparable trading platform, or if the fgr is obliged to purchase the certificates of participation.  

New qualification methods for foreign entities

The draft legislation proposes the introduction of the following two new qualification methods of foreign legal forms which do not have a Dutch equivalent:

  • The "symmetrical method" is applied to foreign entities lacking a Dutch equivalent. Under this method, the Netherlands tax qualification will follow the qualification of the jurisdiction of incorporation of the foreign entity. Therefore, if the foreign entity is deemed transparent for tax purposes in its jurisdiction of incorporation, the Netherlands will treat the foreign entity in the same way.
  • The "fixed method" is applied to foreign entities that are also tax resident in the Netherlands, but for which there is no Dutch equivalent. Foreign entities are opaque in this situation and liable to Dutch corporate income tax as a Dutch resident taxpayer.  

Changes to dividend withholding tax and withholding tax on interest and royalty payments

From 1 January 2022, the draft legislation proposes that the Open C.V. will no longer be a qualifying withholding entity for the purpose of withholding tax on interest and royalties and dividend withholding tax.

Recommended actions

It is highly recommended to examine whether there are any C.V.s or fgrs in your current structure.

For C.V.s: note that not only Dutch C.V.s will be affected by these proposed changes. Foreign partnerships or joint ventures that are deemed to be equivalent to a Dutch C.V. will also be affected by the new rules if they derive income from the Netherlands.

For fgrs: note that it is important to re-examine the fund conditions, in particular the conditions in regard to the marketability of the certificates of participations to ensure that the fgr meets the new definition after 1 January 2022.


[1] Except for the interest attributable to the General Partner

Contact Information
Wouter Diederen
Senior Associate at BakerMcKenzie

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