The Dutch tax practice of Dentons submitted comments (in Dutch) to the legislative proposal to change the Dutch tax treatment of partnerships and mutual funds with the aim to prevent hybrid mismatches that arise as a result of differences in tax treatment in different jurisdictions. We refer to our tax alert for more details with respect to the proposed legislation.

In our response, we have asked the government to clarify the actual purpose of the proposed legislation. Some mismatches that originate from hybrid entities are resolved, others persist and develop new mismatches which will lead to very complex tax analyses, so the supposed goal is not achieved in our view and the implementation of the EU Anti-Tax Avoidance Directive already neutralized the effects of hybrid mismatches. The proposed legislation affects a very large number of legitimate national situations where hybrid mismatches do not play any role and in particular affects people who value their privacy. This seems to be a more important purpose to change the Dutch tax treatment of partnerships and mutual funds than the legislative proposal suggests and the legislative proposal lacks proper substantiation of that purpose in our view. In addition, the proposed transitional law is inadequate and lacks substantiation in our view and the costs of collective restructuring, that will have to take place in a very short timeframe, will be significant for businesses and individuals.

The consultation period is closed and the Dutch government will study the comments of respondents. Considering that the proposed legislation is supposed to have effect as of January 1, 2022 it is expected that any amendments will be published by the government around budget day (September 2021).