Dear FS professional,

We are happy to announce that our colleague Gert-Jan van Norden  has been introduced as KPMG’s Global Head of Financial Services Indirect Tax.

In the FS Tax Newsletter, we provide you with an update on developments in the Financial Services sector. In this edition we have summarized among others two new agreements between the Netherlands Switzerland on the tax treatment of an FBI and a closed FGR. These agreements are intended to clarify the application of the tax treaty between the Netherlands and Switzerland where investments are made through various funds vehicles. We also include an update of relevant jurisprudence relating to VAT. Moreover, we provide you with a summary of the draft bill for the German Investment Tax Reform Act, which has been adopted by the German Parliament. Lastly, we included the proposal of the Netherlands to changes the Dutch Dividend Tax Act with respect to cooperatives.
Niels Groothuizen,
Partner, Financial Services Tax Group

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Table of Contents

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1. Two new agreements between the Netherlands and Switzerland on the tax treatment of an FBI and a closed FGR

On June 8, 2016 the Ministry of Finance posted a news item on its website announcing that two agreements had been concluded with Switzerland on the taxation of various fund vehicles in both countries. Both agreements are intended to clarify the application of the tax treaty between the Netherlands and Switzerland where investments are made through various fund vehicles.

A. Agreement on the tax treatment of an FBI and the Swiss FCP/SICAV

The agreement on the application of treaty benefits for Dutch fiscal investment institutions (“FBIs”) is very unusual. To date, the Netherlands has taken the position that FBIs are “unconditionally” entitled to claim the application of treaty benefits.

Based on the agreement concluded with Switzerland, treaty benefits are granted on the basis of the residency of an FBI’s shareholders. If more than 95% of the capital in an FBI is held by residents of the Netherlands, the FBI is allowed to claim the treaty benefits from the tax treaty between the Netherlands and Switzerland for the entire income. If this is 95% or less, than the Swiss-Dutch tax treaty is applied pro rata to the capital held in the FBI by Dutch residents. If residents from a third country participate in the FBI, the benefits of the tax treaty between the third country and Switzerland may be claimed. In this agreement, the same arrangement applies to the Swiss Fonds Commun de Placement (“FCP”) and Société d’investissement à capital variable (“SICAV”).

The agreement stipulates that (the representatives of) the FBI must report at least once a year how many shares are held by Dutch residents. However, it is not that clear how the burden of proof should be substantiated in practice.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

It is important that the agreement applies to both future and current refund requests. The publication can be found here.

B. Agreement on the tax qualification of a closed FGR and the Swiss Limited Partnership for Collective Capital Investment

The press release also reports that the long-awaited agreement, whereby a closed mutual fund according to Dutch standards (“besloten Fonds voor Gemene Rekening” or besloten FGR”) is also treated as transparent for tax purposes in Switzerland, has been concluded. Similar agreements were already concluded with Canada, Denmark, Germany, Norway, Spain, the United Kingdom, the United States and Sweden, for example.

In turn, the Netherlands will recognize the tax transparency of the Swiss Limited Partnership for Collective Capital Investment (Kommanditgesellschaft für Kollektive Kapitalanlagen).

Lastly, the agreement contains several practical arrangements and conditions concerning the reclaim of withholding tax. On the basis of the agreement, fund managers may reclaim the withholding tax in Switzerland on behalf of the participants who are resident in the Netherlands. Fund managers may, subject to certain conditions, also reclaim withholding tax for participants who are resident in a third country on the basis of the tax treaty between Switzerland and the third country. For the latter, however, the interest in the closed FGR held by residents of the Netherlands must be higher than 95%.

The entry into force is March 14, 2016, the date on which the agreement was signed. The agreement can be found here.

We will of course be happy to discuss the possible impact and practical implementation of these agreements with you. Please contact Valentijn van Noorle Jansen if you would like to know more.

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2. Opinion of Advocate General Kokott in CJEU case: Commission against Luxembourg (C-274/15)

On October 6, 2016, Advocate General Kokott (AG) gave her opinion in the Commission against Luxembourg (C-274/15) case. This concerns an infringement procedure against Luxembourg, and relates to the VAT exemption of the supply of services by ‘independent groups of persons’ to its members. In practice, this exemption is often also referred to as the ‘cost sharing exemption’ (or in Dutch: ‘koepelvrijstelling’). In short, AG Kokott noted that this exemption should be interpreted more strictly by Luxembourg than it currently does.

The Dutch ‘cost sharing exemption’ is not interpreted as broadly as the Luxembourg ‘cost sharing exemption’, and therefore seems to be more in line with the VAT Directive. It is nevertheless interesting to see the CJEU’s final judgment both in this case as well as in the DNB Banka case (C-326/15) and the Aviva case (C-605/15). If you would like to know more, please contact Gert-Jan van Norden or Irene Reiniers from our Indirect Tax Financial Services Group.

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3. Opinion of Advocate General Ettema on exemption for the management of pension funds

The Advocate General (AG) of the Dutch Supreme Court confirmed in her opinion (published on February 23, 2016) that a pension fund with a Defined Benefit (DB) plan can be regarded as a special investment fund, which will exempt the management of it. The final decision of the Dutch Supreme court in this case is expected before the end of this year.

Currently, in the Netherlands, the management of pension funds with Defined Contribution (DC) plans is in principle VAT exempt, while the management of pension funds with DB plans is VAT taxed. This lack of a level playing field gives rise to discussions, which is illustrated both by the many letters of objection filed in practice as well as the political deliberations in this respect.

If the legal rights are properly secured (i.e. if letters of objection were filed timely and correctly), a confirmation of the AG’s opinion by the Dutch Supreme Court would have the following impact:

  • Pension funds with non-Dutch managers can reclaim the reported (reverse charged) VAT directly from the Dutch tax authorities further to the letter of objection filed by the pension fund; and
  • Pension funds with Dutch managers can consult with these service providers in order to reclaim the VAT, as these Dutch service providers can reclaim the reported VAT from the Dutch Tax authorities further to the letter of objection filed by this service provider.

In any case, the management services would be VAT exempt in the future if the Dutch Supreme Court confirms the AG’s opinion. For completeness’ sake we note that the VAT exemption does not only apply to asset management, but also to other services that qualify as ‘management’ (such as certain pension administration activities and investment advisory services).

Please find our full alert regarding this case here. As soon as the Dutch Supreme Court renders its judgment later this year, we will publish an alert. If you would like to know more, please contact Gert-Jan van Norden or Karim Hommen.

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4. CJEU ruled that local input VAT incurred by a branch in one Member State for supplies to its head office that is established in another Member State is recoverable in the Member State of the branch

On June 21, 2016, the Court of Justice of the European Union (CJEU) published its decision in the ESET case (C-393/15). In this case, the CJEU ruled that a Polish branch of a company that incurs costs for its Slovak head office, can (partly) recover the Polish VAT on these costs. Unfortunately, the amount of VAT that could be reclaimed was not a point of discussion in this case, and is therefore not included in the judgment.

This decision appears in line with a currently still existing Decree from the Dutch Ministry of Finance in respect of the VAT treatment of fixed establishments. As the CJEU’s ruling in the ESET case does not set out the extent to which input VAT can be reclaimed in such situations, it remains unclear how the CJEU ruling in the Crédit Lyonnais case (C-388/11) should be dealt with. In that case it was ruled that a head office in one Member State cannot take into account the revenue generated by its branches in other EU member states in calculating its recovery rate. If you would like to know more, please contact Gert-Jan van Norden or Irene Reiniers from our Indirect Tax Financial Services Group.

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5. Advocate General Ettema issues opinion on VAT exemption for the management of (real estate) investment funds

On September 2, 2016, the Opinion issued by Advocate General (AG) Ettema in the Fiscal Unity X case was published. The Opinion follows on from the judgment rendered by the Court of Justice of the European Union (CJEU) in this case on December 9, 2015. The AG concludes that in assessing whether a fund is subject to ‘specific State supervision’ and thus qualifies as a special investment fund, attention must be paid to Dutch regulatory law (currently: the Financial Supervision Act). General administrative services and operational management services can be regarded as VAT-exempt ‘management’ of a special investment fund.

According to the CJEU earlier ruling in this case, funds are only to be regarded as special investment funds if national law provided for ‘specific State supervision’. The Dutch AG has subsequently concluded that the supervision applying until January 1, 2007 by virtue of the Investment Institutions Supervision Act (Wet toezicht beleggingsinstellingen; Wtb) can, in principle, be regarded as ‘specific State supervision’. However, according to the AG, if the fund is exempt from the obligation to obtain a license, the fund is not subject to ‘specific State supervision’. This criterion of ‘specific State supervision’ is new to the Netherlands and has not yet been enforced by the Dutch Tax Authorities.

As of January 1, 2007 the Wtb is replaced by the Financial Supervision Act (Wet op financieel toezicht; Wft). In order to establish whether a fund is under ‘special State supervision’, the Dutch Wft, the EU UCITS and AIFM Directives will have to be assessed in due course.

The Dutch Supreme Court should still pass its final judgment in this case. This judgment may, however, very well leave part of the questions that have arisen in practice unanswered, due to their irrelevance in respect of the specific Fiscale Eenheid X case. As soon as the Dutch Supreme Court renders its judgment later this year, we will publish an alert.

Currently, it remains essential for all types of investment funds to determine the (potential) impact of the impact of the judgment of the CJEU and the upcoming judgment of the Dutch Supreme Court. Please find our full alert regarding the AG’s opinion here. If you would like to know more, please contact Gert-Jan van Norden or Irene Reiniers.

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6. Cum/Cum Provisions adopted by German Parliament

Last June the German Parliament (Bundestag) has adopted the draft bill for the German Investment Tax Reform Act (Investmentsteuerreformgesetz). Apart from a fundamental reform of investment taxation applicable as of 2018, the draft bill includes specific rules to shut down unwanted tax structuring shortly before the dividend record date with the intention to avoid German dividend WHT deduction (“cum/cum trades”).


When proposing specific rules against cum/cum trades in late 2015, the German Ministry of Finance referred to common trading strategies of non-German investors in the course of which German equities are transferred (e.g. sold or lent) shortly before the dividend record date and for a limited period of time cum-dividend entitlement to a German resident counterparty (i.e. direct investors or investment funds), set up with the objective to benefit from advantageous German Withholding Tax (WHT) credit provisions for domestic shareholders. Given the significant proportion of foreign shareholders in German stock corporations, this practice, sometimes also referred to as dividend stripping, used to be rather common before the 'dividend season'.

Despite having equally become a subject of political debate and severe criticism by Fiscal Authorities, cum/cum trades are to be clearly distinguished from so-called “cum/ex transactions” targeted by previous legislative measures: while the exploitation of the German WHT system applicable until 2012 permitted a credit of German WHT in connection with cum-ex trades without withholding a corresponding amount, cum-cum trades might be concluded with the intent of reducing the definite deduction of German WHT on German dividends for non-resident shareholders.

The cum/cum trading practice was declared an undesirable arrangement by the tax authorities especially in 2015, holding out the prospect of appropriate legislative measures to stop it, which have now been set out in Section 36a of the German Income Tax Act.

Compared to previous draft versions discussed over the last months, the provisions passed in the Bundestag today contain significantly different rules with respect to both requirements and consequences.

Outline and ratio legis of the new rules

  • Apart from the general WHT credit / refund requirements, a full credit or refund of the 25% dividend WHT on German shares (or equity-like jouissance rights) requires the shareholder to comply, in principle, with a 45-day minimum holding period and a 70% minimum risk exposure requirement.
  • Otherwise, the WHT credit or refund is limited to 10%, leaving for the shareholder a 15% definite WHT burden equivalent to the definite WHT burden resulting for non-resident shareholders from most Double Tax Treaties Germany has entered into. The non-refundable WHT can be deducted from the amount of taxable income upon request. 

45 days holding period / 91 days observation period

A full WHT credit / refund is only granted if the shareholder has been beneficial owner in terms of Sec. 39 of the German General Tax Code (Abgabenordnung) for a 45 consecutive (!) days minimum holding period. The relevant observation period stretches from 45 days prior until 45 days after the due date of the dividend, resulting in a 91 days observation period. “Days” refer to calendar days.

Until the envisaged introduction of record day processing in Germany effective from 2017 on, the due date for German dividends should be the trading day following record date / day of the German general assembly, i.e. the ex-date.

Different from previous draft versions, beneficial AND civil law ownership will not be required cumulatively.

Buying and selling of shares is deemed to occur on First In-First Out basis (FiFo).

70% minimum risk exposure

Whereas previous draft version called for a minimum risk exposure of only 30%, the provisions passed today require the shareholder to bear without interruption (!) at least 70% of the risk of changes in value related to the equities.

According to the explanatory statements to the law, not only hedges agreed by the shareholder (beneficial owner) are considered harmful for the risk exposure requirement, but also hedges agreed by related parties. Furthermore, micro and macro hedging are considered equally harmful.

For purposes of risk exposure, the law deems separate parties in certain pension trust concepts or under unit-linked life insurance contracts to be a single party.

No obligation to re-transfer the dividends

The WHT refund / credit is only granted as long as the shareholder (beneficial owner) is neither fully nor partially (>50%), directly nor indirectly obliged to transfer the dividend received to another party, e.g. by the means of (compensation) payments in the course of a securities lending, repo, swap or other derivative transaction.

Tax exempt entities and refund obligations

Entities exempt from German WHT on dividends (e.g. German investment funds, life / health insurance companies, charitable entities) that have not been subject to any deduction of German WHT, have to report to the local tax office in charge and refund the WHT if they cannot fulfill the aforementioned requirements.

Personal Scope of Application

Subject to further clarification, the new rules should, in principal, affect German resident shareholder only. Foreign non-resident shareholder are likely to be subject to a 15% definitive WHT burden under the respective Double Tax Treaty entered into with Germany.

Threshold / Exemptions

The new tax credit limitation rules do not apply

  • in case the overall amount of German dividends does not exceed 20,000 EUR annually, or
  • for long term equity investments, i.e. in case the taxpayer had been beneficial owner of the equities for at least one year without interruption  before the dividends are received.

General anti-avoidance rules

The new provisions explicitly state that general tax abuse rules acc. to Sec. 42 of the German Tax Code may apply irrespective of the new Cum/Cum rules.

Outlook: Timeline of application and legislative process

The draft bill passed today in the Bundestag will still have to be passed in the Bundesrat until the law may enter into force.

Whereas the new concept of investment taxation will be applicable as of January 1, 2018, the new tax credit limitation rules shall apply already from 1 January 2016 onwards, which has given rise to constitutional concerns as an act of (illegitimate) ex post facto legislation.

The new rules voted upon today are intended to be only a further step to disincentivize WHT arbitrage through cross-border trading strategies with German shares. In order to extinguish further dividend tax structuring, the German legislator has already indicated to target e.g. compensation payments in the course of securities lending and repo transactions in future legislation.

If you would like to know more, please contact Niels Groothuizen or Valentijn van Noorle Jansen.

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7. Proposed changes to Dutch dividend withholding tax

The difference in tax treatment of profit distributions made by cooperatives and corporations resident in the Netherlands has been under scrutiny from the Dutch government for some time. Also, the European Commission has voiced its concerns with regard to possible state aid.

On September 20, 2016 (Budget day), the Deputy Minister of Finance of the Netherlands sent a letter to Parliament with proposed changes to the Dutch Dividend Tax Act. These changes include a withholding obligation for holding cooperatives, and the extension of an exemption for both shareholders and members of cooperatives in active business structures.

The letter will be followed by a bill, most likely preceded by a public internet consultation; the changes are intended to become effective as  from January 1, 2018, at the latest.


In order to prevent improper use and to better combat abuse, the government intends to require holding cooperatives to deduct dividend withholding tax. These cooperatives are used in international structures and are involved with the holding of participations, asset investment and the financing of related entities. Holding cooperatives also often have a limited number of members. The government proposes introducing a withholding obligation if a member has an interest of 5% or more in the holding cooperative. For dividend withholding tax purposes, the cooperative will in those cases be treated as a company with share capital by equating the membership rights with shares. In active business structures where there is no abuse, a withholding exemption will however apply.

Against this background, the government considers that it would be appropriate to extend the existing withholding exemption for participation dividends involving active business structures (i.e. for parent companies within the EU/EEA with an interest of 5% or more)  to parent companies established in countries with which the Netherlands has concluded a tax treaty. The Netherlands is following the example set by countries such as Belgium and Denmark in this. In order to prevent this facilitating the untaxed routing of dividends from the Netherlands to non-treaty countries and thus also to tax havens, the legislation will provide adequate rules to combat improper use and abuse.

The equating of holding cooperatives with companies with share capital, in combination with the proposed changes to the withholding exemption, means that private limited liability companies (BVs)/public limited companies (NVs) on the one hand, and holding cooperatives on the other, will be treated the same for dividend withholding tax purposes. There is, in principle, a dividend withholding tax obligation, but a withholding exemption will apply to participation dividends if the Netherlands has concluded a tax treaty with the shareholder’s country of residence and there is no question of abuse. With regard to the anti-abuse rules, these will be in line with, for example, the General Anti-Avoidance Rules (GAAR) in the EU Parent-Subsidiary Directive, which means that the exemption will not apply to artificial arrangements and will only apply to active business structures.


The proposals mean that cooperatives must in principle withhold dividend withholding tax in situations where that is now not required. Furthermore, the existing exemption (in case of parent companies within the EU/EEA with an interest of 5% or more) will also be applicable in case of a cooperative, and will also be extended in case of shareholders and members resident in a country with which the Netherlands has concluded a tax treaty, provided no abuse is present. The legislative proposal is intended to become effective as from January 1, 2018 at the latest, most likely preceded by a public internet consultation.

If you would like to know more, please contact Niels Groothuizen.

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