On 14 June 2024, the Dutch Supreme Court ruled that the legal form of the German mutual investment fund (in German: Sondervermögen) is not mentioned in the exhaustive list of non-resident Dutch taxpayers; therefore, a Sondervermögen cannot be taxed on profits derived from Dutch immovable property. This decision will have a major impact on tax revenues, and while an amendment in this respect to the Dutch Corporate Income Tax Act is already planned to go into effect by 1 January 2025, the government may now try to move this forward.

In the case at hand, a Sondervermögen invested in various properties in a number of countries. As it has no legal personality and its assets did not belong to any other (legal) person, the Dutch tax authorities qualified it as a special-purpose-trust (in Dutch: doelvermogen) and imposed corporate income tax assessments for its profits derived from Dutch immovable property. The German fund claimed that its legal form was not mentioned in the list of non-resident taxpayers. Had it been it would be able to benefit from the 0 percent corporate income tax rate applicable to REITs.

The Court of Appeal ruled that the Sondervermögen could be regarded as a special-purpose trust. As it is also a non-resident taxpayer, it could only claim the 0 percent income tax rate if it were willing to re-value its Dutch immovable property to the higher market value immediately prior to the application of the REIT-regime and pay the exit tax. As the statute of limitation to impose the exit tax had elapsed, the German fund refused to voluntarily pay the exit tax, as in its view the revaluation is not a condition to apply the REIT-regime, but a consequence.

The Dutch Supreme Court found that since the Sondervermögen had issued fund units, it could not be regarded as a special-purpose trust, because the assets indirectly belonged to (legal) persons. Furthermore, the Court derived from the parliamentary discussions that the legislator has chosen not to tax foreign equivalents of Dutch mutual investment funds (in Dutch: open fonds voor gemene rekening) and therefore, the Sondervermögen was not taxed at all for its portfolio investments in the Netherlands.

All German mutual investment funds and all other foreign funds that are sufficiently comparable with the German Sondervermögen should consider amending their Dutch income tax returns for which no final tax assessment has been imposed yet or for which the term for objections is still open.

For more details we refer to our Alert from November 2021: Tax alert november 2021