New tax rules for mutual funds, effective from 2025, are causing turmoil in the industry. Some mutual funds may face unexpected tax charges as a result, putting pressure on their returns and ultimate distributions to participants. We express our concerns and call for early clarity to avoid these negative consequences.
Below we have listed the facts.
- At the end of 2023, two laws were passed that will take effect on Jan. 1, 2025: the Law on Tax Qualification of Legal Forms and the Law on Adaptation of Common Account Fund (FGR) and Exempt Investment Institution.
- Investment funds set up in the form of a limited partnership (CV) would thereby be considered tax transparent by default from Jan. 1, 2025.
- Implementation required further elaboration by the Ministry of Finance, resulting in a supplementary decree. This decree was recently published in November 2024.
- Several professional organizations and sectors, including DUFAS, have expressed concerns and indicated that there are still significant bottlenecks in the legislation that must be resolved before Jan. 1, 2025.
- The main problem is that certain investment funds, in DUFAS' view, unintentionally and unforeseeably, face additional taxation on their returns in the form of corporate income tax and dividend tax. This problem arises because legal forms that invest in a tax-neutral manner, such as the limited partnership, can be classified as an '(open) CIS.'
- For investment funds (in the form of a limited partnership), this has profound implications. Take a pension fund as an example. The returns of a pension fund may be taxed under the new legislation: the fund pays corporate income tax (VPB) on the returns, which reduces the taxed pension payment to the participant. The purpose of investment funds - such as pension funds - is precisely that deposits can be invested in a tax-neutral manner, so that the return is taxed only at the participant's expense. The new legislation thus negatively impacts Dutch pensions and investments.
- A solution to this problem has been requested by DUFAS (and others). However, to date, additional time has only been given to the investment funds in question to adjust their terms so that they could qualify as a closed CIS. However, the conditions for a closed CIS often do not work in practice for these funds and thus, in DUFAS' opinion, the promised transition period offers little relief in practice. To address these problems, a motion by Van Eijk (VVD) was adopted. This calls for consultation with the sector. However, it is uncertain whether these consultations can take place in time to remove the bottlenecks before the January 1, 2025 effective date. Removing this uncertainty before January 1, 2025 is important because otherwise this uncertainty could already have a negative effect on the price and valuation of units in these investment funds before or no later than January 1, 2025.