On December 18, 2013, representatives of the Netherlands and the United States signed an intergovernmental agreement (“IGA”) for the automatic exchange of data between the tax authorities of both countries, thus implementing the U.S. legislation known as the Foreign Account Tax Compliance Act (“FATCA”).
The IGA is largely based on the Reciprocal Model 1A IGA version that was published by the U.S. Treasury on November 4, 2013. In addition to certain standard advantages that follow from signing this model IGA, Annex II provides some specific entity and product exemptions. Moreover, a Memorandum of Understanding (“MOU”) has been published, which in certain situations provides some additional relief and clarifications in terms of the applicable FATCA requirements.
The signing of the IGA brings certain general advantages with it, including:
- a reduction in the administrative burden for Dutch financial institutions, while guaranteeing legal protection for their clients;
- Dutch financial institutions no longer need to conclude agreements with the U.S. tax authorities separately. Instead, each nation’s tax authorities will exchange the data. Dutch legislation will be amended to that end;
- under the agreement, beginning September 2015, the Dutch Tax and Customs Administration will automatically exchange data with the U.S. Internal Revenue Service. The Dutch Tax and Customs Administration will also receive data on Dutch taxpayers from the United States.
Annex II to the IGA provides exemptions or reduced FATCA requirements for specific categories of entities and products.
For example, the following Dutch entities that might otherwise be considered Financial Institutions are considered to be Exempt Beneficial Owners, treated as Non-Reporting Netherlands Financial Institutions under the IGA, meaning that they will be exempt from the FATCA due diligence and reporting requirements:
- certain governmental entities;
- certain international organizations;
- pension funds that meet certain conditions;
- an investment entity that is wholly owned by exempt beneficial owners.
The following entities are considered to be Deemed-Compliant Financial Institutions, which are also treated as Non-Reporting Netherlands Financial Institutions under the IGA:
- financial institutions with a local client base, provided conditions are met;
- non-profit organizations that serve a charitable purpose (e.g., “ANBIs”, “SBBIs”);
- funds that are exempt from Dutch corporate income tax and have been set up by a labor union to provide benefits to its members (stakingskassen);
- certain investment managers and investment advisors, provided conditions are met;
- certain collective investment vehicles, provided conditions are met.
The following products and accounts maintained by a Dutch financial institution are not treated as Financial Accounts, meaning that they will not be reportable accounts under FATCA:
- any account owned by an Exempt Beneficial Owner;
- certain retirement and other tax-favored products such as annuities (lijfrenten), contributions to an annuity savings account (lijfrentespaarrekening), tax-efficient blocked annuity investment accounts (lijfrentebeleggingsrechten), special leave accounts (levenslooprekeningen) and insurance under a special leave plan (levensloopverzekering);
- certain products that are linked to Dutch real property such as mortgage-linked endowment insurance (kapitaalverzekering eigen woning) and tax-efficient blocked investment accounts for mortgage repayment (beleggingsrechten eigen woning);
- funds received in relation to the termination of a labor contract (i.e., annuity entitlements; stamrechten);
- funeral insurance policies (with premiums up to EUR 1,000 per annum).
The MOU provides the following additional guidance:
- a Dutch Stichting Administratiekantoor (“STAK”) is to be considered as a passive NFFE unless the interests in the STAK are regularly traded on an established security market (such as the NYSE Euronext Amsterdam). This means that a STAK may be subject to FATCA reporting requirements depending on whether it has Controlling Persons that are US citizens or residents;
- a depositary (bewaarder, bewaarinstelling or bewaarbedrijf) is not regarded as a Financial Institution, or as an Account Holder by a maintaining Financial Institution under FATCA, provided conditions are met. This means that these depositaries will not have to perform FATCA due diligence and reporting, nor will they be subject to FATCA reporting requirements;
- an account held by a foundation (Stichting Derdengelden) is not a reportable account or an account held by a Non-participating Financial Institution if the assets of the foundation serve solely as an escrow for a debt or purchase obligation.