A (foreign) partnership qualifies as an FGR if the following conditions are met:

  1. it constitutes a fund established for the purpose of generating returns for the participants for their joint account;
  2. through the investment or other deployment of funds (the “investment criterion”);
  3. provided that the fund qualifies as an investment fund or an undertaking for collective investment in transferable securities within the meaning of Article 1:1 of the Dutch Financial Supervision Act (Wet op het financieel toezicht, hereinafter: Wft); and
  4. the participation rights in the fund are represented by transferable units of participation.

In practice, there is uncertainty regarding the interpretation of these conditions, and various bottlenecks have been identified. A letter from the State Secretary for Finance (Taxation, Tax Administration and Customs), following an internet consultation, highlights in particular the following points of attention:

  1. the qualification of (foreign) partnerships as FGRs;
  2. the impact of financial supervisory law as a result of the reference to concepts in the Wft; and
  3. legal uncertainty surrounding the investment criterion.

Against this background, the legislator has published a new draft bill for consultation proposing further amendments to the FGR definition. A key feature is a so-called opt-out regime, under which funds may -subject to certain conditions- elect not to qualify as an FGR (and thus be treated as tax transparent). The regime in the consultation draft is limited to funds with a maximum of twenty participants and is accompanied by extensive information reporting obligations. In practice, this option is considered overly restrictive and difficult to implement, particularly in international and multi-layered fund structures. The article discusses several possible solutions.

In addition, grandfathering rules play an important role. As many funds were unable to adapt in time and significant uncertainty remains, temporary transitional measures have been introduced to prevent undesirable, short-term tax liability. These measures allow funds to remain temporarily transparent pending further legislation, which is expected to enter into force no earlier than 2027.

All in all, it can be concluded that the current FGR definition does not sufficiently align with market practice. Despite the proposed amendments, significant issues remain, particularly with regard to the investment criterion and the practical feasibility of the opt-out regime. Further legislative amendments therefore appear necessary to achieve a robust and workable system.

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The full article is available in Dutch, and can be accessed via FED Wolters Kluwer, Fiscaal Tijdschrift FED, Het fonds voor gemene rekening na 1 januari 2025: De finish eindelijk in zicht? | InView, which requires a personal login to access.