5. SENTENCIA DEL TRIBUNAL CONSTITUCIONAL
5.4. ORDENANZA N° 086-2G01-MM
Further, the discontinuing fund may have opted for a different tax status than the continuing fund (e.g. where a fund with fiscal investment institution status mergers with a SICAV). This could lead to different tax consequences for the investor after the merger.
III) Master-feeder
Fund level
All favorable Dutch tax regimes for investment funds (tax transparent, exemption status, fiscal investment institution status) are in principle available for UCITS funds and can be used as a master fund and/or feeder fund.
In particular, all types of UCITS qualify under the shareholder requirements for the fiscal investment institution status, and so master funds could also acquire this status and possibly benefit from Dutch income tax treaties. In that situation, dividend withholding tax is due on profit distributions, but application of the remittance reduction (i.e. the possibility to offset withholding tax withheld on fund income against withholding tax payable on fund distributions) may ultimately lead to a tax-efficient structure.
A foreign feeder fund should not be subject to Dutch corporate income tax with regard to an investment in a Dutch master fund. The Dutch government has proposed to further clarify this rule by amending the corporate income tax act (with effect from 1 January 2012).
The transfer of assets by a Dutch feeder fund to a foreign master fund should have no Dutch tax implications. A Dutch master fund’s acquisition of assets from a foreign feeder also should not have any Dutch tax implications.
Investor level
The transformation of a Dutch master fund into a feeder fund should not trigger any taxation at the investor level as long as investors keep their shares in the feeder fund.
I) Single management company
Management company level
The transfer of all or part of the business of a management company out of the netherlands could have tax implications as it could trigger corporate income tax on capital gains (e.g. regarding goodwill). Should the management company retain a branch in the netherlands, assets could remain behind and taxation could be avoided. Furthermore, the european Court of Justice recently ruled in the national Grid Indus case that this “immediate exit taxation” is in breach of eU legislation. Therefore, it should be possible to avoid taxation upon transfer.
The transfer of all or part of the activities of a foreign management company into the netherlands should not attract any Dutch taxation on set up.
Fund level
With the implementation of the UCITS IV Directive, a specific stipulation has been introduced confirming that the tax residence for a UCITS fund is located in its home Member State. Thus, a non-Dutch fund that is managed by a management company in the netherlands should not be subject to Dutch corporate income tax.
Investor level
The transfer of the management company should not have any Dutch tax implications for investors as the tax residence of the fund should not change.
II) Merger
Fund level
normally, no Dutch tax issues arise for funds on a merger as all favorable Dutch tax regimes for investment funds (tax transparent, exemption status, fiscal investment institution status) effectively do not lead to taxation.
However, if the discontinuing Dutch fund has opted for the fiscal investment institution status, it needs to fulfill its dividend distribution obligation (subject to Dutch dividend withholding tax) prior to the merger. In domestic merger situations, this obligation can be advanced to the continuing fund. This fund must then fulfill the obligation within eight months.
Investor level
Investors should not be taxed on legal mergers in domestic or cross-border situations (excluding additional cash payments), assuming business reasons (other than tax avoidance) for the merger can be substantiated. However, Dutch legislation does not provide legal merger possibilities for contractual funds. In practice, the tax authorities apply the legal merger conditions to a restructuring with a contractual fund involved.
where the effective tax rate of the management company is lower in the transferor country of residence.
Fund level
The transfer of a management company could give rise to potential tax residence issues as long as the management company’s tax residency is relevant in determining the fund’s tax residency. A Spanish manager of a non-Spanish UCITS can make the non- Spanish UCITS tax-resident in Spain. Corporate funds would be in a better position to remain tax-resident in their country of incorporation as they have their own “asset management body”, i.e. board of directors. Spanish tax resident funds are taxed on their worldwide income at a 1 percent tax rate. As a result, where a non Spanish contractual fund becomes tax-resident in Spain, it may not be tax-neutral as long as Spanish tax-resident funds are taxable at the 1 percent tax rate.
Investor level
no taxation of unrealized gains at investor level should arise as long as the potential change in the tax residency of the UCITS fund would not imply the disposal of the shares/units.
Dividend distributions from the Spanish tax resident fund to a foreign investor will be subject to withholding tax at 21 percent (reduced by treaty where applicable). redemption and transfers could be taxable in Spain in the case of non-eU investors who are not treaty-protected.