Netherlands ECJ reclaims: conditions for foreign pension funds published.

Objective comparability of foreign pension funds with Dutch pension funds

[the below is an unofficial translation of a Decree from the Dutch ministry of finance]

In order to be eligible for refund of Dutch dividend withholding tax on the basis of the free movement of capital as laid down in article 63 of the EU Treaty (also known as ECJ reclaims) foreign pension funds must be objectively comparable with Dutch tax exempt pension plans. In order to be considered objectively comparable with Dutch tax exempt pension plans,  and thus eligible for Netherlands ECJ reclaims, foreign pension plans must meet the following conditions:

A) The pension plan has is its sole (or almost sole) objective the care of (former) employees, their (former) spouses or (former) partners, and children or foster children under the age of 30, for the consequences of old age, death and disability.

Approval re condition A

It may be customary in the country of establishment of the pension plan that, in the event of the employee's death, family members other than (former) spouses or partners and (custody) children can be designated as beneficiaries in the pension scheme. I (the state secretary of Finance) approve that in that case the objective requirement of Article 5, first paragraph, part b, of the CIT Act can also be met with this wider circle of family members.

B) The activities of the pension plan are in accordance with the aforementioned purpose (activities requirement, Article 3 Executive Decree to the CIT Act).

C) The pension plan meets the profit destination requirement (Article 3 Executive Decree to the CIT Act).

D) The pension plan is not a pension plan for the director of a personal holding company.

E) The pension scheme is based on collective organized solidarity. The collectivity and solidarity concept is, among other things, reflected in the profit destination requirement.

F) Participation in the plan or insurance for employees is compulsory (securing and protecting pension entitlement).

G) The pension scheme provides for an old -age pension, survivor's pension and/or disability pension, agreed between an employer and employee on the basis of a pension agreement.

H) Fiscal, social and labor legislation abroad may be different with regard to, for example, the retirement age and the accrual percentage. The condition is that the whole must be and remain a labor and wage-related income provision. This means that: (1) the pension accrual is linked to the duration of the employment contract (service time) and to the reimbursement for the performance of work and (2) the pension benefits always have the lifelong care of the old age or at Death the lifelong care of relatives or income replacement in the event of disability.

In this context, lifelong care means that the pension must be paid for life. A temporary pension scheme that pays benefits prior to the retirement age and where the benefits expire in the event of death is also considered aimed at lifelong care. Also a pension to care for orphans up to a legally determined maximum age or earlier death of the beneficiary meets the requirement of "lifelong".

I) The pension scheme has an early redemption ban with the exception of an early redemption option for small pensions. The possibility of early redemption of small pensions is based on the idea that (the relatively high) administrative costs for the pension plan can be limited this way.

Approval

In the country of establishment of the pension plan, an early redemption option for small pensions can exist that assumes higher amounts than the amount that applies in the Netherlands. If it can be made plausible that the early redemption option for these small pensions is also based on the limitation of administrative costs for the pension plan, I (the state secretary of finance) approve that this condition is met.

J) The pension plan comprises multiple monetary payments. A one -off capital benefit (lump sum) on the retirement date does not stand in the way of comparability with a Dutch pension scheme, provided that the capital payment must be used directly and mandatorily for the purchase of multiple pension benefits payments and a different use is not possible.

K) Additional conditions will apply for pension plans for the self -employed.

L) The foreign pension scheme does not fall under the social security system of the country where the pension plan is established.

Taxology comment:

Taxology’s position is that established ECJ case law on DWT reclaims based on the free movement of capital does not allow member states to simply apply the conditions for exemption for domestic pension plans to foreign pension plans. The relevant test should be whether the foreign pension plan is customary under its own (pension) law, and meets the requirements of a pension plan in its country of residence. We therefore strongly recommend every foreign pension fund whose Dutch DWT ECJ reclaim is denied or approved but reassessed to file a timely objection against such rejection or reassessment, and seek legal advice as to how to proceed. Taxology assists foreign pension funds with filing ECJ reclaims, as well as objecting, appealing and if necessary litigation rejected claims or reassessments.