What has changed?
Under the new classification rules, as a main rule, all Dutch limited partnerships (commanditaire vennootschap) and foreign equivalents have become transparent for Dutch tax purposes. Foreign equivalents include inter alia the Luxembourg SCSp (Société en Commandite Spéciale) and Anglo-Saxon limited partnerships (including governed by US and UK law).
However, an exception applies if the limited partnership qualifies as a ‘fund for joint account’ (fonds voor gemene rekening; FGR). In that case, the non-transparent FGR classification prevails.
Why is this relevant for Dutch pension funds?
It may be preferable for Dutch pension funds that a Fund is considered transparent for Dutch tax purposes. This might be required for the Dutch pension fund to be entitled to an exemption or reduction of withholding tax on income derived by the Fund under a tax treaty between the Netherlands and (one of) the investment jurisdictions. In addition, if the Fund would be considered non-transparent, this might give rise to so-called ‘hybrid mismatches’, which could under circumstances lead to (additional) taxation at the level of the Fund or the underlying portfolio companies.
However, a non-transparent classification may not necessarily impose a problem for all investments of Dutch pension funds in Funds (and could even be beneficial in certain situations). Consequently, the potential impact of an FGR qualification should be assessed for each individual structure and based on all relevant facts and circumstances.
What is an FGR?
A limited partnership qualifies as an FGR if it meets the following cumulative criteria:
- It qualifies as a regulated investment fund (an ‘AIF’ or ‘UCITS’);
- Its activities are limited to passive investment activities for Dutch tax purposes (beleggen);
- It has more than one investor; and
- Its participations are transferrable in another way than solely to the fund by way of a redemption.
Please refer to our brochure on the Dutch entity tax classification on this topic for more details on these criteria.
What is to come?
Due to various issues and uncertainties relating to the FGR definition since 1 January 2025, a new legislative proposal with further amendments to the FGR definition was published for consultation, including the introduction of an opt-out regime (afmeldregeling) for Funds with a maximum of 20 participants. For this proposal, a public consultation was launched that was open until 2 February 2026. The proposal is expected to take effect no earlier than 1 January 2027. For more details, please also see our recent website article: Consultation proposal to amend the FGR regime.
Until this new legislative proposal enters into force, certain grandfathering rules will apply for Funds with a desire to remain transparent but that might be at risk of an FGR qualification.
What should pension funds do?
As the Dutch tax entity classification rules have changed and will change again in the future, our takeaways for pension funds are the following:
- Pension funds should review the application of the FGR rules for all existing and new investments in Funds. If adverse consequences are identified, it should be checked whether it is possible to amend the fund documentation (in a way that the Fund no longer qualifies as an FGR) or to take advantage of grandfathering relief.
- The legislative developments should be monitored. The consultation on the draft legislation is now closed, and any enacted changes will enter into force in 2027 or later.
Loyens & Loeff has ample experience on this topic and we are happy to assist with a (pragmatic) check of the impact of these rules for pension funds. We are well placed to advise on these matters as we can provide combined tax, legal and regulatory advice in relation hereto. We have also been actively involved in the consultation process and will continue to do so.
Contact us
Should you have queries or need any assistance, please contact your trusted adviser at Loyens & Loeff or one of the specialists mentioned below.
