State Secretary addresses key issues in revised FGR definition

Introduction
On 12 June 2025, the Dutch State Secretary of Finance sent a letter to the House of Representatives addressing the key practical issues arising from the revised definition of the Dutch fund for mutual account (fonds voor gemene rekening; FGR). In this letter, the State Secretary of Finance provides an update on the implementation of the new policy framework that entered into force on 1 January 2025. He identifies three key issues resulting from the amended definition and outlines possible courses of action. This may lead to new legislative proposals later this year.

Background
As of 1 January 2025, the tax treatment of Dutch and foreign legal entities has changed significantly (see also our earlier newsflash: Important publication DTA about Dutch tax classification of foreign entities – Atlas Tax Lawyers. One of the key elements of this reform is the revised definition of the FGR, as introduced in the Amendment Act on Funds for Mutual Account and Exempt Investment Institutions (Wet aanpassing fonds voor gemene rekening en vrijgestelde beleggingsinstelling).

Based on this new definition, Dutch and foreign partnerships are in principle transparent. However, these partnerships can nonetheless be classified as a non-transparent FGR if the following cumulative conditions are met:

• The fund pools assets which are held passively for the benefit of multiple investors.
• The fund qualifies as an investment fund or undertaking for collective investment in transferable securities as defined in Article 1:1 of the Dutch Financial Supervision Act (Wet op financieel toezicht; Wft), the UCITS Directive or the AIFM Directive. This also includes funds operating under the so-called light regime (Article 1:13a or 2:66a Wft).
• Participations in the fund are freely transferable. Only if participations may only be transferred back to the fund itself (the redemption fund), they are deemed non-transferable.

Letter from the State Secretary of Finance
The above mentioned cumulative conditions lead to uncertainty and therefore criticism in practice. A consultation has been launched earlier this year, several stakeholders responded to this. Further to this, the State Secretary of Finance now identified three key issues in his letter and explained follow up actions.

1. Qualification of (foreign) partnerships as FGRs
Under the revised definition, partnerships, including foreign partnerships, may qualify as FGRs. This raises classification issues and practical difficulties. For larger funds, maintaining transparency through a redemption-based structure is often not workable. One proposal is to exclude partnerships entirely from the FGR regime. However, this would be undesirable for, among others, real estate funds and would impose a significant administrative burden on the Dutch Tax Authorities (DTA), who would then need to assess income tax returns for each individual participant. A possible solution would be to introduce a rule under which partnerships that would not face tax issues as a result of transparency would either retain or obtain tax-transparent status, whereas partnerships for which transparency would lead to tax issues would be treated, either optionally or mandatorily, as separate taxpayers. This potential solution seems a opt-in / opt-out regime. This approach would be accompanied by appropriate transitional measures. Further analysis is planned, and a draft legislative proposal may be released for consultation later this year.

2. Uncertainty relating to financial regulatory definitions
The use of regulatory terminology from the Wft in the FGR definition introduces legal uncertainty and unnecessary complexity. In particular, the reference to Article 1:1 Wft requires expertise in regulatory law and may be interpreted differently across EU Member States. Is has been proposed replacing the current references to “investment fund” and “undertaking for collective investment in transferable securities” with the broader categories “investment institution” or “UCITS”. Although such a revision would require a legislative change, the original policy aim — excluding family funds — could still be achieved. However, it would eliminate the distinction between investment funds and investment companies. The government is also exploring whether qualification of foreign funds could be simplified by accepting registration with foreign supervisory authorities similar to the Dutch Authority for the Financial Markets.

3. Legal uncertainty surrounding the investment criterion
There is ambiguity as to when an activity qualifies as “passive investment” for tax purposes (as opposed to carrying on an active business), which creates uncertainty for FGR classification. The distinction between investing and carrying on a business is highly fact-specific and case-dependent. Some stakeholders have suggested aligning the tax definition of investment with the broader interpretation under the Wft, which would include, for example, private equity. However, this approach is considered unsuitable due to concerns about an overly broad scope and further entanglement with regulatory concepts. The current tax interpretation will therefore be maintained. In cases of uncertainty, taxpayers are encouraged to seek advance certainty from the DTA.

Recommendations and next steps
In his letter, the State Secretary of Finance indicated that further research will be undertaken in relation to issues 1 and 2. This may have impact especially on whether funds that want to remain transparent are obliged to implement a redemption mechanism in the fund documentation, or whether a opt-in system will be implemented. 

Addressing the first two issues is expected to require legislative amendments. A draft bill may therefore be submitted for public consultation this autumn.

We will continue to closely monitor developments and inform you as soon as more information becomes available. Should you have any questions, please do not hesitate to contact our colleagues Arthur Smeijer and Emilie Meeus We would be pleased to assist you.