New Dutch regulations for comparison of foreign legal forms

The Dutch classification rules for Dutch and non-Dutch legal entities and partnerships will be amended to align with international standards. As such, the Dutch government has issued a new decree for the comparison of foreign legal forms with Dutch legal forms. This Decree, which will come into effect on January 1, 2025, explains the methods for fiscal qualification of foreign legal forms in the Netherlands and gives further guidance to the Fiscal Qualification Policy for Legal Forms Act, which was adopted at the end of 2023.

Comparison Methods 

The main item of this Decree is the use of the so called “legal form comparison method”, which determines whether a foreign legal form is comparable to a Dutch legal form. This is done by comparing the nature and structure of the foreign legal form with those of similar Dutch legal forms.

If a Dutch counterpart cannot be found (or more than one comparable Dutch counterpart can be found) using this legal form comparison method, the “fixed method” must be applied. If such a foreign legal form is a tax resident in the Netherlands, the foreign legal form will always be considered non-transparent for Dutch tax purposes.

The “symmetrical method” applies to non-comparable legal forms that are not a tax resident of the Netherlands. Based on this method, the foreign legal form is treated in the same way as in the country where the legal form is considered a tax resident and as such could be either transparent or non- transparent for Dutch tax purposes, depending on the tax classification in the country of residence

Impact United States legal forms

For US entities or partnerships, this means that the US legal form such as the Corporation, Limited Liability Company, Limited Partnership (including LLP and LLLP), and General Partnership (GP), will now have to be systematically compared to Dutch legal forms to determine the classification for Dutch tax purposes. This may result in changes in the Dutch tax treatment in respect of US groups with subsidiaries in the Netherlands, or Dutch groups with subsidiaries in the US. It is therefore recommended to timely assess the potential impact this may have on US-Netherlands tax structures.

Below is a list of comparable and non-comparable US legal forms with Dutch legal forms (note: this applies to all US states):

As an example, a Dutch Limited Partnership (CV) will always be treated as transparent for Dutch tax purposes as per January 1, 2025. As such, based on a comparison with a Dutch LP, a US LP will also be classified as transparent for Dutch tax purposes as per January 1, 2025. This may be different to the current qualification for Dutch tax purposes, where US LPs may qualify as non-transparent for Dutch tax purposes up to December 31, 2024.

Also, the classification for Dutch tax purposes of a US LLP or LLLP may change as the Netherlands will follow the US classification for US tax purposes as of January 1, 2025.

It is therefore recommended to assess the legal organizational chart to see whether a US LP, LLP or LLLP holds an interest in a Dutch entity, or vice versa, a Dutch entity holding an interest as a partner in a US LP, LLP or LLLP.

A requalification for Dutch tax purposes may impact the application of the Dutch non-resident substantial interest rules on US shareholders, Dutch dividend withholding tax, the conditional withholding tax on interest, royalties, and dividends, ATAD 2 rules (hybrid mismatches), and the Dutch participation exemption.

In case of questions, please feel free to reach out to RSM.