Changes in qualification open LPs and foreign legal forms

Dutch CVs and foreign legal forms comparable to Dutch Entities

As previously noted, one of the key components of the proposed measures is the removal of the so-called 'consent requirement.' Currently, this requirement determines whether a Dutch CV should be classified as transparent (underlying partners can be subject to taxation) or non-transparent (the CV itself is subject to taxation). According to the proposed legislation, a Dutch CV will now always be treated as fiscally transparent and will no longer be subject to Dutch corporate tax or Dutch withholding taxes. Instead, starting from 1 January 2025, the partners of a CV will be directly liable for taxation on their participation in the CV (either corporate or personal income tax, depending on whether the participant is a legal entity or a natural person). This rule will also apply to foreign legal forms that are comparable to a Dutch CV.

Transitional provisions

For Dutch CVs and foreign legal forms comparable to Dutch entities that currently qualify as non-transparent for Dutch corporate tax purposes, the shift to fiscal transparency implies that they are considered to have transferred their assets and liabilities to their participants (a fictional disposal followed by cessation). In principle, this results in a final tax settlement on hidden reserves, fiscal reserves, and goodwill. To prevent immediate taxation on these, the proposed legislation includes transitional provisions:

1. A rollover facility (the tax claim on hidden reserves, fiscal reserves, and goodwill is taken over by the underlying limited partners).
2. A stock merger facility (the underlying limited partners can transfer the tax claim to a holding company).
3. A rollover facility in the case of taxable income from the provision of goods (in Dutch “tbs” situations) (the underlying limited partners can transfer the tax claim on assets they make available). 
4. A deferred payment option, spanning up to ten years.

If the proposed legislation is accepted, the law is set to come into effect on 1 January 2025. Taxpayers can already invoke the transitional provisions in 2024. This provides taxpayers with a year to prepare for the proposed measures and potentially utilise the transitional facilities.

Relationship with ATAD2

You may be wondering if there was already European legislation addressing hybrid mismatches. Indeed, as of 2020, measures to combat these mismatches were introduced through the implementation of the EU ATAD2 Directive. These measures mitigate the effects of hybrid mismatches. For instance, payments to hybrid entities may not be tax-deductible under specific conditions or may be subject to taxation under certain circumstances. 

In contrast, the proposed qualification measures aim to eliminate the root cause of hybrid mismatches, which lies in the differences in qualification between tax systems. The qualification of open CVs and certain foreign legal forms revolves around determining to whom specific income should be attributed: the open CV or the foreign legal form itself, or the underlying participant(s). The answer to this question essentially determines who bears the tax liability.

Another measure introduced by the EU ATAD2 Directive is the corporate income tax liability for so-called 'reverse hybrid entities' which became effective on 1 January 2022. These entities are partnerships established in the Netherlands that are transparent under Dutch law but non-transparent under foreign law. This measure remains in place. For open CVs that become fiscally transparent as of 1 January 2025, but are also classified as (taxable) reverse hybrid entities, there is no final settlement obligation.