In the Netherlands, it is proposed that each acquisition of a financial interest of less than one third in an investment fund or a fund for the collective investment in transferable securities would not be subject to the real estate transfer tax.
Current Dutch law provides that acquisitions of less than one-third interest in real estate entities are not subject to real estate transfer tax, whereas acquisitions of one third interest or more are subject to the real estate transfer tax.
For these purposes, an entity is considered to be a “real estate entity” if the purpose and assets tests have been met—(1) 50% or more of the assets must consist of real estate; (2) at least 30% of the assets must consist of real estate located in the Netherlands; and (3) the real estate is held primarily for operational purposes (purchase, sale or rental).
On the basis of case law, these provisions apply to real estate entities having a “legal personality” (for example, a public limited company (NV) and a private limited liability company (BV)) and to entities without legal personality (for example, a partnership, limited partnership (CV) or a common fund (fonds voor gemene rekening)).
The acquisition of participations, however small, in an entity without legal personality not regarded as a real estate entity, is subject to the real estate transfer tax because this is considered to be an acquisition of a financial interest in the real estate. In these situations, the special rules whereby acquisitions are only subject to taxation if a one-third or greater interest is acquired do not apply.
This treatment can result in an incongruous situation whereby acquisitions in real estate funds without legal personality, that hold less than 30% interest in Dutch real estate, are always subject to real estate transfer tax, while acquisitions of participations in similar funds and real estate funds with legal personality that are regarded real estate entities, are only subject to tax in respect of acquired interests of one third or more.
Correction of unequal treatment
The Tax Plan 2014 would correct the unequal treatment in the real estate transfer tax between funds without legal personality that qualify as a real estate entity and those that do not.
Under the proposal, each acquisition of a financial interest of less than one third in an investment fund or a fund for the collective investment in transferable securities would not be subject to real estate transfer tax. Accordingly, the composition of the assets of these funds is no longer relevant.
Foreign (often German) real estate funds without legal personality that own real estate in the Netherlands (less than 30% interest) would apparently benefit the most from this change because the acquisition of minimal participations in these investment funds would no longer be subject to Dutch real estate transfer tax.
Note, however, that an investment fund or fund for the collective investment in transferable securities must be involved. This means that acquisitions of interests in funds without a legal personality that operate a business involving real estate would be subject to real estate transfer tax—regardless of the size of the interest acquired.
Therefore, differences would still exist between the direct acquisition of real estate (by way of funds without legal personality) and the indirect acquisition of real estate by way of acquiring shares in a legal entity.