EU Taxation Omnibus

The Taxation Omnibus proposal introduces amendments to various EU directives relating to direct taxation, among others, the Parent-Subsidiary Directive (PSD). The proposal aims to simplify EU tax rules, cutting administrative burdens and strengthening the competitiveness of the EU market.

While the Taxation Omnibus proposal covers a broad range of amendments, the PSD may be particularly relevant for pension funds. The scope of the PSD is proposed to be expanded to also cover pension funds, irrespective of their legal form. Furthermore, it is proposed to abolish the minimum ownership threshold (currently 10%). This would result in a broad dividend withholding tax exemption for pension funds investing in EU companies and remove significant tax obstacles to cross-border investments. 

The amendments above are proposed to apply as of 1 January 2037. As the adoption of the Taxation Omnibus requires unanimous consent of all Member States, it may still be subject to change prior to its adoption. Reference is also made to our earlier article on the Taxation Omnibus for more details on the proposed amendments.

Temporary relief for FBIs

The FBI regime is a tax-neutral regime for collective investment vehicles. Broadly, it effectively eliminates taxation at the level of the investment institution through a reduced 0% tax rate and shifts taxation to the level of the investors through the annual requirement to distribute profits. The regime is subject to strict statutory requirements, including the ‘distribution requirement’ and the ‘financing limitation’. Given its tax-neutral nature, FBIs are commonly used to pool investments held by (multiple) pension funds.

As of 1 January 2025, the Netherlands introduced new rules for the tax classification of Dutch and foreign entities. 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, unless they qualify as a fund for joint account (fonds voor gemene rekening; FGR). For more details, please refer to our earlier article on Dutch tax classification reform: what pension funds need to know.

Practical implications for FBIs

As a result, interests that were previously treated as non-transparent may now be regarded as transparent for Dutch tax purposes. Consequently, the underlying assets and liabilities now being attributed pro rata to the FBI and income being recognised directly at the level of the FBI rather than at the level of the underlying entity. This may create practical issues for the application of the distribution requirement and the financing limitation.

Temporary relief measure

To address these issues, the State Secretary has introduced a temporary approval allowing FBIs, for the purpose of the distribution requirement and the financing limitation, to continue treating certain interests in underlying entities as non-transparent.

The approval applies to interests that were held, directly or indirectly, immediately prior to 1 January 2025 and that have become transparent as a result of the reform of the Dutch tax classification framework per that date. The relief is applicable for a transitional period of up to seven financial years or, if shorter, for the period during which the FBI continues to hold the relevant interest. 

To apply the relief, the FBI must send a declaration to the Dutch tax authorities ultimately on 22 September 2026. For more details, reference is made to our earlier article on temporary approval for FBIs.

Takeaway

The amendments proposed by the Taxation Omnibus are a positive development for pension funds, as they aim to reduce withholding tax leakage for cross-border investments made in the EU (albeit it will still take some time before these proposed amendments may enter into force). In addition, for pension funds investing through FBI structures, the temporary relief may provide a pragmatic solution for certain issues arising from the reform of the Dutch tax classification framework. If applicable, action does need to be taken quickly.

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Our specialists have extensive experience on these topics. We are well placed to advise on these matters as we can provide combined tax, legal and regulatory advice in relation hereto.

Should you have queries or need any assistance, please contact your trusted adviser at Loyens & Loeff or one of the specialists mentioned below.