The Netherlands Brings Entity Tax Classification Rules In Line With International Standards

The current Dutch tax classification rules for Dutch and foreign entities (such as partnerships) are quite unique and therefore deviate from international standards. In particular, this has caused 'hybrid entity mismatches' in an international context. For this reason, the Dutch government has (finally) proposed to overhaul these rules with certain legislative proposals. These proposals are open for consultation until 26 April 2021. The new rules, if enacted, should enter into force as per 1 January 2022.

Current entity classification rules

To date, the Netherlands applies very specific entity classification rules for determining whether a limited partnership (either Dutch or foreign) is considered transparent or non-transparent for Dutch tax purposes. Under the Dutch rules, the decisive criterion is whether accession or substitution of a limited partner requires unanimous consent of all (general and limited) partners. Only if such unanimous consent is required