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PwC Netherlands I June 2024
Dutch Supreme Court – German Immobilien-Sondervermögen not subject to Dutch CIT
In brief
On 14 June 2024, the Dutch Supreme Court ruled in a landmark case in favour of a German Publikumsfonds (Immobilien-Sondervermögen (the German Fund)) that was represented by PwC1. In line with an earlier ruling from 20202 in relation to Dutch dividend withholding tax, the Supreme Court decided that German Funds do not qualify as a doelvermogen and therefore are not subject to Dutch corporate income tax (CIT).
In detail
No Dutch CIT liability for Immobilien-Sondervermögen
The Supreme Court was presented with the question whether the German Fund qualifies as a non-resident taxpayer based on its legal form. Based on the Dutch corporate income tax act (CITA), foreign corporations, partnerships and special purpose funds (doelvermogens) can be subject to Dutch CIT, if these entities derive income from the Netherlands (e.g., real estate income). The Supreme Court decided that the list of foreign entities that qualify as non resident taxpayer for Dutch CIT purposes is an exhaustive list. The Supreme Court decided that the German Fund is not considered a doelvermogen as the equity of the German Fund belongs to the holders of the participation rights issued by the fund. As the German Fund does not qualify as a corporation or partnership either, it does not qualify as a non-resident taxpayer for Dutch CIT purposes. In this regard, the Supreme Court ruled in line with its previous decision on the qualification of a German Fund in relation to a dividend withholding tax case.
The case at hand
The German Fund initiated the litigation because it was treated less favorable than comparable Dutch resident funds. These Dutch resident funds, subject to certain conditions, are able to benefit from the Dutch REIT-regime (fiscale beleggingsinstelling, or FBI-regime), subject to a 0% Dutch CIT rate. The Dutch tax authorities denied application of the FBI-regime to the German Fund. The German Fund claimed, at the district court and the court of appeal, that such denial is in breach of the free movement of capital under EU Law (also refer to the decision of the European Court of Justice in the case L-Fund (C537/20)).
Following the decision of the Supreme Court in 2020, the German Fund added the argument that it does not qualify as a non-resident taxpayer for Dutch CIT purposes, as it should not be considered a doelvermogen, and also does not qualify as a corporation or partnership. As a subsequent argument, it claimed that if it were subject to Dutch CIT, it should be allowed to benefit from the Dutch FBI-regime (i.e., 0% CIT rate), just as comparable Dutch resident funds.
In 2021, the court of appeal3 decided that, in short, the German Fund is subject to Dutch CIT and is not eligible to the FBI-regime. We refer to our newsletter on this decision of the court of appeal.
In its decision of 14 June 2024, the Supreme Court ruled that the German Fund does not qualify as a non-resident taxpayer and as such is not subject to Dutch CIT. As a consequence, the Supreme Court did not need to answer the question whether the German Fund should have access to the FBI-regime based on EU law.
Our view
The decision of the Supreme Court that the German Fund is not subject to Dutch CIT, is in line with its earlier ruling from 2020. The practical importance of this decision for foreign funds investing in Dutch real estate is limited going forward, as anticipating on this Supreme Court ruling, Dutch tax law has been amended as per 1 January 2025. As from this date the non-resident mutual fund (fonds voor gemene rekening) has been included as non-resident taxpayer for Dutch CIT purposes. In addition, the FBI-regime is no longer applicable to Dutch and foreign funds investing in Dutch real estate directly.
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