US, the Netherlands Agree on Fiscal Security for Funds and Investors

News article | July 2, 2012

The Dutch and US governments have agreed on the fiscal aspects of the "closed-end common fund," a Dutch investment vehicle.

This Competent Authority Agreement provides fiscal clarity for this structure that allows for the pooling of assets, also referred to as asset pooling. The main purpose of asset pooling is the increase of returns and risk diversification. By pooling assets in closed-end common funds, financial institutions can realize considerable cost savings for investors. The agreement was signed by the US and the Netherlands on May 21, 2012. This agreement took effect that same day.

The closed-end common fund is used as an investment vehicle by national and foreign pension funds and other investors. It has been agreed that the US will follow the fiscal qualification of the Netherlands. In so far as Dutch residents participate in the closed-end common fund, the closed-end common fund is considered as being fiscally transparent. This means that the fund itself is in no way subject to taxation in the Netherlands.

This avoids that as a result of their participation in the fund the participants will be confronted with an additional levying of taxes compared to the situation in which they themselves would have invested in the US directly. The agreement in particular concerns funds with different kinds of investors. The agreement is an extension of the agreement concluded with the US for pension funds in 2007. The fiscal security in advance is important for the financial sector in the Netherlands. As a result new and existing investment funds can attract investors, which is advantageous for the competitive position of the Dutch financial sector. 

The Netherlands has concluded agreements with Canada, the United Kingdom, Denmark, Norway and the US with regard to the fiscal treatment of closed-end common funds. A provision in the newly concluded tax treaty has been agreed with Germany.