1. 'European regimes for collective
investments. The Dutch perspective‘
Dr. Hein Vermeulen
Amsterdam Centre for Tax Law (ACTL)
University of Amsterdam
26 April 2012
Bogotá, Colombia
Instituto Colombiano de Derecho Tributarion (ICDT)

2. Agenda
• The Dutch tax regime in general
• Dutch solutions
– Fiscally transparent investment structures
– Special regimes for Collective Investment Vehicles
• The Fiscal Investment Institution
• The Exempt Investment Institution
• Taxable structures
• Comparative law overview

3. The Dutch tax regime in general
• Three taxes are relevant
– Personal income tax
• Taxation of private individuals
• All income: business income, labour income, investment income
– Corporate income tax
• Taxation of legal entities
• All income: business income and investment income
– Dividend withholding tax
• Taxation of shareholder to be withheld by legal entity
• Serves a prelevy for personal and corporate income tax
• In the end, credited against personal and corporate income tax or refunded
• No taxation at source for interest and royalties
• Classical system

4. The classical system
Private individual Private
Personal income Personal income tax
individual
tax at level of at level of
private individual private individual
Corporate income tax at
Legal entity level of
corporate entity
No deduction from tax
Stock Stock
Company Company
base for dividend
Real estate Real estate distribution
Stock or Stock or
bonds bonds

5. The Dutch tax regime in general
• The general nature of classical system leads to
• One layer of taxation if investment is individual
– Personal income tax
• Two layers of taxation if investment is collective
– Corporate income tax
– Dividend withholding tax is credited or refunded
• How to cope with two layers of taxation?

6. Agenda
• The Dutch tax regime in general
• Dutch solutions
– Fiscally transparent investment structures
– Special regimes for Collective Investment Vehicles
• The Fiscal Investment Institution
• The Exempt Investment Institution
• Taxable structures
• Comparative law overview

7. The Dutch approach
• Collective investment is beneficial for
– Governments (short money made long)
– Citizens (economies of scales, risk spreading, expertise)
– The financial system (stability)
• Classical system leads to two layers of tax
• Principle of tax neutrality at collective investment
– Put collective investment at par with individual investment
– Taxation may not hinder collective investment
• In essence two ways
– Eliminate tax at level of the CIV
– Eliminate tax at level of the investor

8. The Dutch approach
Investor level
Corporate taxation at level of CIV is eliminated, so
CIV level CIV only one layer of tax remains
at the level of the investor
Investment level
Co
Stock or Real estate
bonds

9. The Dutch approach
• Taxation may not hinder collective investment
• Principle of tax neutrality
– Taxation of the individual investors is equal to the taxation
of a collective investment to which they would have been
subjected had they invested directly in the investments of
the Collective Investment Vehicle
• European Commission
– ‘… this mechanism puts the tax treatment of an
investment in a [Collective Investment Vehicle, HV] at par
with the taxation of direct investments by individuals in …’
• Thus elimination of tax at level of the CIV

10. The Dutch approach
• Elimination of tax at level of the CIV
– Fiscally transparent investment structures
– Special regimes for Collective Investment Vehicles
• The Fiscal Investment Institution
• The Exempt Investment Institution
• Aim: fiscal neutrality

11. Agenda
• The Dutch tax regime in general
• Dutch solutions
– Fiscally transparent investment structures
– Special regimes for Collective Investment Vehicles
• The Fiscal Investment Institution
• The Exempt Investment Institution
• Taxable structures
• Comparative law overview

12. Fiscally transparent structures
• CIV is not a corporate taxpayer
– CIV is neglected, disregarded
• Look-through, conduit, fiscally transparent
– The income and the equity (both assets and liabilities) of
the CIV are automatically allocated pro rata – on basis of
their interest – to participating investors in the CIV without
the need for a distribution declaration (or decision) by the
CIV.
• Hence, income and property taxed in hands of investors
– Automatically, fiscal neutrality
– Fiscal transparency results in no additional layer of tax at
the level of the CIV
• As such, fiscally transparent structures functions well as a CIV

13. Fiscally transparent structures
• Three main consequences
– taxation of the investors is equal to the taxation to
which they would have been subjected had they
invested directly in the investments of the fiscally
transparent CIV
– Type of income is not altered
• No conversion of a type of income into another type of
income
– Investors are not bothered with each other’s tax
status
• e.g. pension funds can align with insurance companies

14. Fiscally transparent structure
Investors receive dividends, interest income
Investor level or rental income directly
CIV is disregarded for tax purposes
CIV level CIV
Investment level
Co
Stock or Real estate
bonds

15. Fiscally transparent structures
• Three Dutch vehicles
– Common partnership
– Limited partnership
– Mutual fund (or fund for joint account)
• Common partnership
– Contractual arrangement
– Investors are partners
– Co-ownership
– External manager
– Transparency through consent partners upon transfer and
admittance new partners
– Not suitable for large number of investors
– Suitable for active investments

16. Fiscally transparent structures
• Limited partnership
– Contractual arrangement
– Investors are limited partners
– Manager is general partner
– Co-ownership
– Transparency through consent partners upon
transfer and admittance new partners
– Not suitable for large number of investors
– Suitable for active investments

17. Fiscally transparent structures
• Mutual fund (or fund for joint account)
– Contractual arrangement
– Investors are participants
– Manager is external
– Transparency through
• Consent partners upon transfer and admittance new
partners
• Redemption clause
– Suitable for large number of investors
• Retail and institutional
– Suitable for passive investments

18. Fiscally transparent structures
• Contractual arrangement
– No legal personality
• Need for a custodian (‘safekeeper’)
– To hold legal title of investments on behalf and
account for the investors
– ‘bankruptcy remote vehicle’
• Need for an external manager
– To manage the investments of the CIV
• Unless LP, where GP is manager

19. No legal personality
Investor level Economic ownership
Legal ownership
CIV level Manager CIV (legal title)
Custodian
Investment level
Co
Stock or Real estate
bonds

20. Fiscally transparent structures
• Conclusions fiscally transparent structures
– Are not corporate taxpayers
– Disregarded
– No conversion of income
– Absence of dividend withholding tax
– No requirement on investment level
– Absence of legal personality
• Thus legal flexibility
– May be an administrative hassle
– No tax treaty benefits, but Dutch Mutual Fund may act as an
agent
• Cf. § 6.28 Commentary to OECD MTC
• Cf. § 2.2.1 and 2.4 Dutch Memorandum on Tax Treaty Policy 2011

21. Agenda
• The Dutch tax regime in general
• Dutch solutions
– Fiscally transparent investment structures
– Special regimes for Collective Investment
Vehicles
• The Fiscal Investment Institution
• The Exempt Investment Institution
• Taxable structures
• Comparative law overview

22. Fiscal Investment Institution
• Fiscal Investment Institution = FBI
• Part of Dutch law since 1970
– Successor of 1940’s CIV regime
• Money needed after WWII
– Oldest CIV regime in Europe
• Fiscal Investment Institution in short
– Corporate taxpayer
– Corporate tax rate of 0%
– Requirements

23. Fiscal Investment Institution
• Requirements, many!
• Legal form (public limited liability company,
private limited liability company, MF)
– Less legal flexibility
• Strict shareholder requirements
– Either listed on a stock exchange or not
• Distribution requirement
– Fiscal Investment Institution must distribute its profits
promptly after year end
• More or less immediate taxation in the hands of the
investors

24. Fiscal Investment Institution
• Gearing requirement
– Forbids excessive debt at level of CIV
• 60% tax book value real estate
• 20% other investments
• Activity requirement
– Forbids to engage in a trade or a business
• CIV regime only supports investment activities
– Based on principle to treat individual investment equally with
collective investment

25. Fiscal Investment Institution
• Main consequences
– taxation of the investors is ‘equal’ to the taxation
to which they would have been subjected had
they invested directly in the investments of the
Fiscal Investment Institution
– Type of income is altered
• Conversion of all income into dividend income and
capital gains/losses on shares in Fiscal Investment
Institution

26. Fiscal Investment Institution
Investors receive dividend income and
Investor level capital gains/losses on their interest in the
Fiscal Investment Institution
Dividend withholding tax
Fiscal Investment Institution = corporate taxpayer
CIV level CIV Corporate tax rate = 0%
All income is converted into profit of the Fiscal
Investment Institution
Investment level
Co
Stock or Real estate
bonds

27. Fiscal Investment Institution
• Conversion of income
– Dividend income and capital gains/losses on
stocks at investment level is profit at CIV level
– Interest income and capital gains/losses on bonds
at investment level is profit at CIV level
– Rental income and capital gains/losses on real
estate at investment level is profit at CIV level
• This converted income may receive different
tax treatment than the ‘original’ income

28. Fiscal Investment Institution can have
legal personality
Investor level
Legal ownership (legal title)
CIV level and economic ownership at the level
CIV of the CIV, if organized as a company
NV (public limited liability company) or
BV (private limited liability company)
Investment level
Co
Stock or Real estate
bonds

29. Fiscal Investment Institution
• Upon dividend distribution Fiscal Investment
Institution must withhold Dutch dividend
withholding tax
– Credit against personal income tax or corporate
income tax
– Refund for Dutch exempt entities (e.g. pension
funds)
• No tax leakage

30. Fiscal Investment Institution
• Conclusions Fiscal Investment Institution
– Corporate taxpayer
– Dividend withholding tax
• Regime for Fiscal Investment Institution provides for
tax neutrality
– Between individual investment
– And collective investment
– Suitable for large number of (retail, institutional) investors
– Well appreciated internationally
• Cf. § 6.12 Commentary to OECD MTC
• Cf. § 2.2.1 Dutch Memorandum on Tax Treaty Policy 2011

31. Agenda
• The Dutch tax regime in general
• Dutch solutions
– Fiscally transparent investment structures
– Special regimes for Collective Investment
Vehicles
• The Fiscal Investment Institution
• The Exempt Investment Institution
• Taxable structures
• Comparative law overview

32. Exempt Investment Institution
• Fiscal Investment Institution = VBI
• Relatively new: August 2007
• Designed to compete with other European
fund regimes
– Luxembourg and Ireland
– Copycat of the Luxembourg SICAV
– Background need for CIV regime without
distribution requirement

33. Exempt Investment Institution
• Not subject to Dutch corporate income tax
– Hence its name Exempt Investment Institution
• Its investors are not subject to Dutch dividend
withholding tax
• This is too good to be true, so there must be a
catch?

34. Exempt Investment Institution
• Requirements, not so many!
– No distribution requirement, no gearing requirement,
no dividend withholding tax
• Transferrable Securities requirement
– Stock, securities, bonds, options, swaps, derivatives
• Risk spreading requirement
• Investment Institution
– Dutch Financial Markets Supervision Act
• Variable capital requirement
– Investors may ask for refund of their capital invested

35. Exempt Investment Institution
• Main consequences
– Exempt from corporate income tax
– Taxation of the investors is ‘equal’ to the taxation to
which they would have been subjected had they
invested directly in the investments of the Exempt
Investment Institution
– Type of income is altered
• Conversion of all income into dividend income and capital
gains/losses on shares in Exempt Investment Institution
• Note the difference with transparent vehicles

36. Exempt Investment Institution
Investors receive dividend income and
Investor level capital gains/losses on their interest in the
Exempt Investment Institution
Exempt Investment Institution ≠ corporate taxpayer
CIV level CIV Exempt from corporate tax rate
All income is still converted into (commercial) profit
of the Fiscal Investment Institution
Exempt Investment Institution may only invest in
Investment level
Co
X Transferable Securities,
(stock, bonds, futures, options et cetera) but not
in Dutch real estate
Stock or Real estate ≠
bonds transferable
security

37. Exempt Investment Institution
• Conversion of income
– Dividend income and capital gains/losses on
stocks at investment level is profit at CIV level
– Interest income and capital gains/losses on bonds
at investment level is profit at CIV level
• This converted income may receive different
tax treatment than the ‘original’ income

38. Exempt Investment Institution
• Is Exempt Investment Institution too good to be
true?
• The catch is twofold
– Exempt Investment Institution cannot credit any (e.g.
dividend) withholding tax suffered on its investments
– Exempt Investment Institution is not recognized as
person under Double Tax Treaties
• Cf. § 6.12 Commentary to OECD MTC
• Cf. § 2.2.1 Dutch Memorandum on Tax Treaty Policy 2011

39. Exempt Investment Institution
• Conclusions Exempt Investment Institution
– Not a Corporate taxpayer
• No credit availability for underlying source taxation
• Not recognized as a person under Tax Treaties
– No Dividend withholding tax
– Suitable for large number of investors
• Either listed or non-listed
– Not suitable for investments that attract WHT
• Regime for Exempt Investment Institution provides for
tax neutrality
– Between individual investment
– And collective investment

40. Agenda
• The Dutch tax regime in general
• Dutch solutions
– Fiscally transparent investment structures
– Special regimes for Collective Investment Vehicles
• The Fiscal Investment Institution
• The Exempt Investment Institution
• Taxable structures
• Comparative law overview

41. Taxable structures
• Use of CIV regime is not mandatory
– If requirements are met, CIV regime does not apply
automatically
• Why not use of the general tax system?
• Disadvantages CIV regimes
– Activity requirements
– Gearing restrictions
– Asset allocation restrictions
– Unavailability of tax facilities
– Administrative hassle
– Uncertainty treaty application

42. Taxable structures
• Solution is taxable structure
• Coop-structure
– Coop is corporate entity with legal personality
– Corporate taxpayer
– In principle, not a taxable subject for Dutch dividend
withholding tax
• Its distributions do not trigger Dutch dividend withholding tax
– Use of Dutch participation exemption to circumvent
economic double taxation
– Income and capital gains from domestic or foreign
shareholdings are not taxed in the Netherlands
– In the end no Dutch tax leakage at Fund (Coop-BV-
combination) level

43. Taxable structure
Institutional
Institutional
investor
Institutional
investor No Dutch dividend withholding tax
investors
ROW
NL
Corporate
Coop tax entity
Use of participation exemption
BV
Corporate Use of participation exemption
tax entity
ROW
Sub Sub Sub

44. Agenda
• The Dutch tax regime in general
• Dutch solutions
– Fiscally transparent investment structures
– Special regimes for Collective Investment Vehicles
• The Fiscal Investment Institution
• The Exempt Investment Institution
• Taxable structures
• Comparative law overview

45. Comparative law overview
• European systems
• Generally, three types of CIV regimes
– Transparent structures
– Funds
• UCITS
– REITS

46. Comparative law overview
• Transparent structures: no CIT nor WHT
• All look like Dutch Mutual Fund
– Lux FCP (fonds commun de placement)
• Subscription tax is levied
• Also French FCP and Belgian FCP
– Irish CCF (common contractual fund)
– UK unit trust
– German Sondervermögen
• Different techniques to create transparency
• No legal personality, externally managed

47. UCITS
• UCITS for retail market
– Undertakings for Collective Investment in Transferable
Securities
• European law Directives since 1985
– To harmonize European market from a regulatory
point of view
– In ‘parts’: now UCITS IV Directive
• License in Resident State
• European passport for marketing in all other
Member States after notification
• Investor protection

48. UCITS
• Open-end Collective Investment Vehicle
– Investor is entitled to request redemption of his
interest in the Collective Investment Vehicle
• Requirements at fund level
– Prospectus requirement
– Subject to supervision of Market Authority
• Requirements at investment level
– Transferable Securities only
• Stock, securities, bonds, options, swaps, derivatives
– Risk spreading, limits on seize of investment

49. Luxembourg SICAV
• SICAV = Société d’investissement à capital
variable
– i.e. investment company with variable capital
• No corporate taxpayer
– Annual ‘taxe d’abonnement’
• Payable on a quarterly basis and assessed on its net
asset value at the end of each quarter
• No shareholder requirements
• Limited requirements on investment level

50. Luxembourg SICAV
• No withholding tax on dividends
• No distribution requirement
• Treaty eligible under several Tax Treaties
– Specifically negotiated by Lux Authorities
• Cf. § 6.12 Commentary to OECD MTC
• Cf. § 2.2.1 Dutch Memorandum on Tax Treaty Policy 2011
• Recognised by foreign Market Authorities
– Hong Kong, et cetera
• Combination of regulatory law and tax law is
essential
– Arbitrage in respect of residency of CIV

51. Luxembourg SICAV
Investors receive dividend income and
Investor level capital gains/losses on their interest in the
SICAV
SICAV = exempt from corporate tax rate
CIV level CIV All income is still converted into (commercial) profit
of the SICAV
SICAV has no requirements for investments
Investment level
Co
Stock or
bonds

52. Irish UCITS
• Undertakings for Collective Investment in
Transferable Securities
• Various legal forms
– Trust, partnership or company
• No corporate taxpayer
– Only exit tax for Irish investors
• No distribution requirement

53. Irish UCITS
• Dividend withholding tax
• Treaty eligible under several Tax Treaties
– Dependent on legal form
• Recognised by foreign Market Authorities
• Requirements on investment level equal to
UCITS Directive

54. Irish UCITS
Investors receive dividend income and
Investor level capital gains/losses on their interest in the
Irish UCITS
Irish UCITS = exempt from corporate tax rate
CIV level CIV All income is still converted into (commercial) profit
of the Irish UCITS
Irish UCITS may only invest in
Transferable Securities as listed in UCITS
Investment level
Co Directive
Stock or
bonds

55. Dutch UCITS
• Use of
– Dutch Fiscal Investment Institution
– Dutch Exempt Investment Institution
• Distribution requirement depends on choice of CIV
• Tax treaty status depends on choice of CIV
• Key is recognition by foreign Fin’l Market Authorities
– Especially outside Europe
• Visits to other country by Dutch Financial Market Authority
• Combination of regulatory law and tax law is essential

56. REITS
• Special fund regimes for investments in real
estate
• Dutch REIT since 1970
• UK REIT since 2007
• German REIT since 2007
• French REIT (SIIC) since 2003
• Italian REIT (SIIQ) since 2007
• Spanish REIT (SOCIMI) since 2009

57. REITS
• Real estate is a special asset class
• Different solutions chosen
– Housing only, rental income only, only listed
companies eligible, etc.
• Principle of source state taxation
– i.e. Source State has unlimited taxing right
• This functions well in domestic context
• Problems arise in international context

58. REITS in an international context
Residence State
Source State
Co Which CS has taxing right?

59. 'European regimes for collective
investments. The Dutch perspective‘
Dr. Hein Vermeulen
Amsterdam Centre for Tax Law (ACTL)
University of Amsterdam
26 April 2012
Bogotá, Colombia
Instituto Colombiano de Derecho Tributarion (ICDT)