How we assisted a German client investigating who was subject to Dutch tax

The client’s problem

A German client of our firm has invested in Dutch real estate via a German limited partnership, a so-called GmbH & Co KG. The client generates Dutch source income due to the exploitation of Dutch real estate. This means that Dutch tax is due on the rental income and capital gains. Client needed to know who would be subject to Dutch tax, the GmbH & Co KG or its partners?

What was the underlying problem? A GmbH & CO KG has one or more general partners and one or more limited partners. A GmbH & Co KG can for Dutch tax purposes therefore be compared with a Dutch limited partnership, such as the CV.

A limited partnership is for Dutch tax purposes either fully tax transparent, or non-transparent for the part of the profits that should be allocated to the limited partners. In practice nearly all profits of a limited partnership are destined for the limited partners.

Dutch tax law provides for a test by which it can be determined if a limited partnership is tax transparent or not. In case of full tax transparency, the individual partners of the limited partnership would become subject to Dutch tax.

Our solution

How did we solve client’s problem? In the case at hand, we reviewed the articles of association of the German GmbH & Co KG. On the basis of our review we concluded that this specific GmbH & Co KG was not tax transparent. As a result, the GmbH & Co KG itself was subject to Dutch tax (and not its limited partners) as a foreign taxpayer.

Subsequently, we contacted the Dutch tax authorities and requested them to submit a Dutch tax registration number and to issue a Dutch corporate income tax return. This would enable the German GmbH & Co KG to report its Dutch taxable income.

Current situation

Our client has now certainty about its Dutch tax position, more specific the taxability of the German GmbH & Co KG.

Note: due to the privacy of our clients, this case study provided by TGS lime tree does not include any names, numbers and other sensitive information of our clients, partners and other parties involved.