evert-jan.spoelder@borgentax.nl

Background: the Dutch subjective tax exemption

Dutch pension funds generally benefit from a broad exemption from Dutch corporate income tax and dividend withholding tax. Foreign pension funds may also qualify for this exemption if they are sufficiently comparable to a Dutch pension fund. This assessment is based on Dutch tax policy, most notably a decree of the State Secretary of Finance, which sets out a number of cumulative conditions that foreign pension schemes must meet.

In practice, these conditions have often proven difficult to satisfy, particularly for pension schemes that deviate from the Dutch model. The two recent position papers clarify how the Dutch tax authorities interpret two of the more restrictive criteria and do so in a way that offers additional room for foreign pension funds.

Company pension schemes and social security

One of the conditions for applying the subjective exemption is that the foreign pension scheme must not form part of the social security system of the country in which the pension fund is established. Under Dutch law, statutory old-age pensions generally ‑fall within the social security system (e.g. AOW).

The first position paper concerns a company pension scheme that replaces the statutory pension for a specific group of workers. Although participation in the scheme is mandatory, the Dutch tax authorities conclude that this does not automatically mean that the scheme forms part of the foreign social security system. Decisive factors include the non-‑generic character of the scheme and the fact that the pension fund does not make general payments (like the Dutch AOW). ‑As a result, such schemes may still qualify for the Dutch subjective exemption, provided the other conditions are met.

Case 2: Survivor’s pensions and lump‑sum payments

The second position paper addresses the Dutch prohibition on commutation (i.e. withdrawal at pension age), which aims to ensure that pension capital remains available for long-term old‑-age or survivor protection. In principle, pension entitlements should not be able to be converted into (whole or partial) ‑withdrawals‑.

The case at hand involved a foreign pension scheme under which a survivor’s pension ends upon remarriage, accompanied by a one-off final payment capped at a limited amount. The Dutch tax authorities acknowledge that, while such a payment could formally be viewed as a commutation, the payment is directly linked to the end of the underlying need for care and functions as a transitional measure. As such, it does not conflict with the ‑objective of the Dutch commutation prohibition. Consequently, this feature does not prevent the application of the subjective exemption.

Why this matters

These positions confirm that the Dutch tax authorities, in assessing comparability, are willing to look beyond formal differences and focus on the economic reality and purpose of foreign pension arrangements. For foreign pension funds with investments in Dutch companies, this may significantly improve their ability to reclaim Dutch dividend withholding tax or secure exemption from Dutch corporate income tax.

Please feel free to reach out if you would like to discuss the implications for your organisation.