Investment Climate Improving in The Netherlands

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1 ALBANY AMSTERDAM ATLANTA BOCA RATON BOSTON CHICAGO DALLAS DELAWARE DENVER FORT LAUDERDALE HOUSTON LAS VEGAS LOS ANGELES MIAMI NEW JERSEY NEW YORK ORANGE COUNTY ORLANDO PHILADELPHIA PHOENIX SACRAMENTO SILICON VALLEY TALLAHASSEE TOKYO TYSONS CORNER WASHINGTON, D.C. WEST PALM BEACH ZURICH Strategic Alliances with Independent Law Firms* BRUSSELS LONDON MILAN ROME TOKYO Investment Climate Improving in The Netherlands May 2006 GREENBERG TRAURIG, LLP ATTORNEYS AT LAW

2 In order to improve the attractiveness of the Netherlands for foreign investors, the Dutch State Secretary of Finance recently introduced several tax reductions and announced additional tax measures to strengthen the position of the Netherlands as a favorable country in which to establish holding and finance companies and investment funds. These improvements include: Abolishment of the Dutch Capital Tax As of January 1, 2006, Dutch capital tax is abolished. Consequently, no capital tax is due any longer upon capital contributions to a Dutch entity. Reduction of the Dutch Corporate Income Tax Rate The Dutch State Secretary of Finance announced plans to reduce the Dutch corporate income tax rate from 29.6 percent to 25 percent, as of Reduction of the National Dividend Withholding Tax Rate The current national dividend withholding tax rate amounts to 25 percent. Legislation is proposed to reduce this rate to 15 percent, effective as of Simplification of the Hybrid Financing Legislation Dutch tax laws currently provide a complex set of rules for hybrid debt instruments. Rumors are that this anti-abuse legislation may be simplified. This may create interesting tax planning opportunities for double dip funding structures. Introduction of a New Exempt Investment Entity/New Decree on the Tax Transparent Mutual Investment Funds BACKGROUND The Netherlands has been increasing its attractiveness as a beneficial jurisdiction for investment funds. On April 25, 2006, the State Secretary of Finance presented a bill to the Dutch parliament concerning the tax-exempt treatment of Dutch Fiscal Investment Institutions ( DFII ). This bill introduces a new exempt DFII and some amendments to ease the current DFII-regime, which will co-exist alongside the new exempt DFII. Furthermore, on March 27, 2006, the State Secretary of Finance issued a decree which clarifies the tax treatment of tax-transparent mutual funds. In addition, it was recently announced that the tax treatment of real estate investments will be addressed in a separate bill. All these developments create maximum flexibility and enable investors, depending on their own tax position and investment preferences, to invest through (i) DFIIs, (ii) the new exempt DFIIs or (iii) fully tax-transparent mutual investment funds. May 2006 GT Alert Investment Climate Improving in The Netherlands - 2 -

3 CURRENT TAX TREATMENT OF DFII Generally speaking, the current tax treatment for DFIIs provides for: Zero percent corporate income tax rate Obligation to distribute all profits realized during a taxable year, within eight months following the end of such year, to shareholders Regular Dutch dividend withholding tax upon the distribution of the profits (25 percent, unless reduced or eliminated by a tax treaty) Partial refund of dividend withholding tax on incoming dividends Tax treaty protection Numerous corporate requirements (regarding its shareholders and nature of the financing of its assets, among others) In most cases, a DFII is interposed between the investors and the investments to achieve economies of scale, such as lowering investment management fees and widening the spread of risk. From a tax perspective, the current DFII regime can be ideal for Dutch individuals and institutional investors, including Dutch pension funds, since the Dutch dividend tax withheld can be credited or refunded. In addition, this DFII can be useful for foreign share investments, because the foreign dividend withholding taxes can be reduced to the applicable treaty rates and can be refunded by the Dutch tax authorities, within certain limits, to the DFII. Unlike the new exempt DFII, the current DFII can make investments in real estate and mortgage loans. NEW EXEMPT DFII TAX TREATMENT The newly introduced tax regime for DFIIs will provide for: Exemption from Dutch corporate income tax and dividend withholding tax No obligation to distribute annual profits to shareholders within the eight-month period following a taxable year No corporate requirements regarding shareholders or financing requirements An open-ended character and investments only in financial instruments, as defined in the EU UCITS-Directive No tax treaty protection No refund of withholding taxes on incoming dividend and interest The new exempt DFII will be particularly attractive for foreign investors, both institutional and individual. Given the absence of treaty protection, the exempt treatment may not offer efficient structuring opportunities for straightforward equity investments. However, the new treatment may offer an excellent opportunity for the tax-efficient structuring of investments generating interest income that is not subject to taxation in the source state (e.g., which is entitled to the U.S. portfolio interest exemption and interest on bonds), investments into foreign tax-exempt UCITS and investments in growth shares and in derivatives, the results of which generally are not subject to income or withholding tax in the source state. It should be noted that the new exempt DFII can not make investments in real estate and mortgage loans. May 2006 GT Alert Investment Climate Improving in The Netherlands - 3 -

4 DECREE ON TAX TRANSPARENT MUTUAL INVESTMENT FUNDS The decree describes the treatment for tax purposes of funds in the form of a tax transparent mutual investment fund ( besloten fonds voor gemene rekening ), also known as a closed mutual investment fund. It clarifies under which conditions the fund (including a so-called umbrella fund ) will be treated as transparent for tax purposes. Furthermore, the decree stipulates that if the tax position of such a fund is not clear to a tax treaty partner, the Dutch Ministry of Finance will, upon request, discuss the matter with the treaty partner. These transparent mutual funds are ideal for pension funds with respect to asset pooling. May 2006 GT Alert Investment Climate Improving in The Netherlands - 4 -

5 This Alert was written by Boyke Baldewsing and Gerwin de Wilde in the Amsterdam office. Please contact Mr. Baldewsing at , Mr. de Wilde at or your Greenberg Traurig liaison, if you have any questions regarding the subject matter of this GT Alert. Albany Amsterdam Atlanta Boca Raton Boston Chicago Dallas Delaware Denver Fort Lauderdale Houston Las Vegas Los Angeles Miami New Jersey New York Orange County Orlando Philadelphia Phoenix Sacramento Silicon Valley Tallahassee Tokyo Tysons Corner Washington, D.C West Palm Beach Zurich This Greenberg Traurig ALERT is issued for informational purposes only and is not intended to be construed or used as general legal advice. The hiring of a lawyer is an important decision. Before you decide, ask for written information about the lawyer s legal qualifications and experience. Greenberg Traurig is a trade name of Greenberg Traurig, LLP and Greenberg Traurig, P.A Greenberg Traurig, LLP. All rights reserved. *Greenberg Traurig has entered into Strategic Alliances with the following independent law firms, where Greenberg Traurig attorneys are available for consultation by appointment only: Olswang in London and Brussels, Studio Santa Maria in Milan and Rome, and the Hayabusa Kokusai Law Offices in Tokyo. Greenberg Traurig is not responsible for any legal or other services rendered by attorneys employed by the Strategic Alliance firms. May 2006 GT Alert Investment Climate Improving in The Netherlands - 5 -