22-06-2011
Dutch Tax Authorities watch Stichting Particulier Fonds (SPF) [Private Foundation]

Partly through the action taken by the Dutch Minister of Finance, Jan Kees de Jager, the crackdown on Dutch-held foreign assets has persuaded many Dutch citizens to declare concealed assets held in foreign bank accounts. The Voluntary Disclosure Scheme, which restricts penalties imposed on undeclared assets to 30% of the total sum of the tax due and which imposes no tax on income earned in the last two years, has contributed to a great many taxpayers reporting their undeclared funds. Protection Schemes, such as the Netherlands Antilles Private Foundation (SPF) are now also under the scrutiny of the Dutch Tax Authorities. In this respect the Minister of Finance has announced that he will be working with the Netherlands Antilles Authorities to trace the involvement of Dutch residents in SPF’s. Liechtenstein foundations are also being investigated by the Tax Authorities.

In this respect with have prepared a Q&A, which you can access by clicking here.

Formation SPF and allocation of assets
The focus of  the Dutch Tax Authorities on the Netherlands Antilles SPF was strengthened by an amendment in Dutch tax legislation which took effect on 1 January 2010. Under such amendment, the assets and liabilities of an SPF are, by legal assumption, allocated to the founder or his/her beneficiaries. The beneficiary (person to whom the assets have been allocated) must declare these assets in his/her income tax return, which income could be taxable.

The Netherlands Antilles SPF is a unique foundation as it allows the ultimate beneficial owner to hold assets and to make distributions to his/her relatives. It may be formed by the founder, a financial organization or a trust office. The SPF also offers a range of tax advantages. In practice, the SPF is exempted from almost any type of tax in the Netherlands Antilles if the parties involved are not residents of the Netherlands Antilles. Moreover, no Antilles tax is due on profits. This also applies to gift, withholding and capital tax.

Prior to 1 January, 2010 the tax treatment of assets held by an SPF was vague. Taxpayers were given the opportunity to request clarity in the form of a tax ruling. Failure to make use of this opportunity meant that the criterion for the tax treatment applied was based on whether the founder (contributor of the assets) could dispose of such assets as if they were his own. In such case, the SPF was deemed transparent and the ultimate beneficial owner was taxed on the assets. The taxpayer could put forward his standpoint in the tax return.

The Tax Authorities could also decide that the assets were in a ‘tax vacuum’. In such case, no-one could be taxed on the assets. It goes without saying that this perspective was strongly opposed by the Dutch Tax Authorities.

On January 1, 2010, new legislation was introduced covering the APV (Afgezonderd Particulier Vermogen) [separated private assets]. The term APV designates any legal construction enabling the separation of assets that primarily (more than 10-15%) serve a private interest. The assets contributed to an APV are allocated to either the founder or one of his/her beneficiaries. Allocation is abandoned in specific cases. This is the case if, for example, a compensating levy of 10% is imposed on the APV.

The introduction of the APV has also affected gift and inheritance tax. The consequence is that APV’s allocated to the beneficiary of the founder, are deemed to have been acquired by the beneficiary pursuant to inheritance law. And so, the beneficiary must, in principle, pay inheritance tax.

The Anglo-American Trust and the Liechtenstein Anstalt and Stiftung are well-known examples of an APV.

Given the legislative amendment it is important that past standpoints concerning assets contributed to an SPF are reviewed. It is possible that previous standpoints taken by taxpayers are incorrect. For instance, the tax return states that there was no mandatory allocation of assets by SPF to taxpayer whilst this was indeed the case. A taxpayer might also have been entitled to periodic benefits under the SPF, which he should have declared in the income tax return but neglected to do.

Finally, one should aware that where a taxpayer in the past successfully took the position that an SPF was not transparent, this has now changed in that with effect from 1 January 2010 assets will be allocated to the taxpayer.

International exchange of information
The tracing of assets by the Dutch Tax Authorities is part of the global trend in which the tax authorities of different countries cooperate internationally to trace undeclared assets/foreign assets. Such cooperation is strengthened, not only through tax treaties and European Directives but also through agreements specifically directed towards the exchange of tax information (the so-called Tax Information Exchange Agreements (TIEA's)). The Netherlands has concluded 20 such TIEA’s with other countries within a short space of time. Moreover, a consequence of the implementation of the new Social Assistance Directive is that the investigative power of the Dutch tax officials has also increased considerably. Dutch tax officials may, for instance, also carry out investigations abroad. The current far-reaching international cooperation makes it increasingly difficult to sustain possible secret bank accounts.

Data carriers
A number of recent studies have shown that various tax authorities have used data carriers made available by former bank employees to trace undeclared assets. The various member states share these data carriers within the context of international cooperation. Hence, the Dutch Tax Authorities gratefully use a CD-ROM made available by the French Authorities to trace assets held in an SPF. It is reported that this CD-Rom contains information with respect to approximately 600 Dutch citizens with assets in an SPF. The CD also includes information on Dutch residents with a foreign bank account number.

The Tax Authorities have established that many SPF’s were liquidated prior to the legislative amendment taking effect. The assets were usually paid out to the founder and/or his/her relatives. The Tax Authorities subsequently commenced an in-depth investigation to ascertain whether the parties involved acted in anticipation of the legislative amendment. For this, the Tax Authorities also used the CD-ROM made available by the French Authorities and they have indicated that the information on the CD is sufficient to write to the relevant taxpayers. The Netherlands Antilles Authorities have indicated that they will give the Dutch Tax Authorities their full cooperation.

Voluntary disclosure of undeclared assets in an SPF
Dutch tax legislation encompasses a favourable scheme which may be invoked by taxpayers for the correction of their filed tax returns. Taxpayers may make use of a voluntary disclosure scheme to comply with their tax obligations concerning their involvement in an SPF or other form of APV. For such voluntary disclosure, however, it is important that the Tax Authorities have no knowledge of the incorrect tax return. A further condition is that there is no reasonable presumption on the part of the taxpayer that the Tax Authorities will become aware of such incorrect information. If, for example, the Tax Inspector has already posed questions on the foreign assets, the taxpayer may, in principle, not invoke the voluntary disclosure scheme.

Should a taxpayer decide to invoke the voluntary disclosure scheme and voluntary disclosure is accepted, the penalty imposed will be restricted to 30% of the tax sum due. In addition, no tax will be imposed for the last two years. If the voluntary disclosure scheme is not applied, a higher penalty is applicable and this can mount up to as much as 300% of the tax due.

In the event of any possible involvement in an SPF, it is advisable in all circumstances to have your business affairs reviewed by an tax expert. It can then be determined whether the position taken in the past is sustainable or whether application of the voluntary disclosure scheme is the better option.

What can VMW Taxand do for you?
VMW Taxand has extensive experience in advising taxpayers who wish to invoke the voluntary disclosure scheme. It is important that this is done prudently. For this reason, taxpayers are assisted through all phases of the voluntary disclosure process, e.g. collation of documentation, drafting the tax calculation and negotiating with the Tax Authorities. If desired, we can provide you with an overview of the possible financial consequences of such voluntary disclosure. In addition, we will review and analyze an SPF, or other form of APV on the basis of prevailing legislation.

If you are an entrepreneur, our assistance will ensure that your business will continue to operate uninterruptedly. If you are a private individual, you can rest easy in the knowledge that your foreign assets will be declared properly so that you are able to dispose of them as you wish after voluntary disclosure has taken place

For further information without obligation, please contact: Roelof Vos (roelof.vos@vmwtaxand.nl) or Chris van Wijngaarden (chris.vanwijngaarden@vmwtaxand.nl).