As of January 1, 2016, an important policy decree regarding the taxation of limited partnerships in the Netherlands has been simplified. A Dutch limited partnership (commanditaire vennootschap, or “CV”) is an agreement between one or more general partners and one or more limited partners to contribute assets, cash or labor in order to conduct a business jointly. For Dutch tax purposes, a CV can qualify as either transparent or nontransparent. A CV is considered transparent if prior (written) consent is required from all partners in the CV, i.e., both general and limited, for the admission and substitution of limited partners (“Consent Requirement”). The Consent Requirement must be correctly implemented in the CV’s partnership agreement and adhered to in practice as well. A CV qualifying as transparent is not taxable for Dutch corporate income tax purposes. Transparent CVs are commonly used in international group structures, particularly when US multinationals are involved.
In some group structures, the CV’s partners and/or the CV’s subsidiaries also constitute CVs, or comparable foreign transparent partnerships, resulting in a chain of tax transparent entities. In such structures, the Consent Requirement entails the prior consent fromall general and limited partners of all partnerships up and down the chain being obtained for the admission and substitution of a limited partner of one of these CVs (“Mutual Consent Requirement”). Prior to January 1, 2016, failure to comply with the Mutual Consent Requirement in group structures could result in the entire group qualifying as nontransparent and thus taxable for Dutch corporate income tax purposes.
In a new policy decree issued by the Dutch State Secretary of Finance, it is stated that, as of January 1, 2016, prior consent for the admission or substitution of a limited partner is only required from the general and limited partners of a CV or comparable foreign limited partnership in which a limited partner will be admitted or substituted (“Simplified Consent Requirement”). In practice, this means that it is no longer required to obtain the prior consent from all partners of all partnerships in the chain, which can be considered a significant improvement from both an administrative and (tax) risk perspective.
The Simplified Consent Requirement will only apply to CVs or comparable foreign limited partnerships that have implemented a provision to this effect in all of their articles of association or partnership agreements. For group structures containing CVs and/or comparable foreign limited partnerships, we recommend having the articles of association and/or partnership agreement reviewed and, if necessary, amended in order to benefit from the Simplified Consent Requirement.