UK, Netherlands Clarify Fund Tax Treatment

by Robin Pilgrim, LawAndTax-News.com, London

21 September 2010

The UK government and the Netherlands have entered into a Competent Authority Agreement clarifying the tax treatment of investors in the Netherlands’ investment vehicle ‘fonds voor gemene rekening’ (FGR, or closed funds for mutual account), with regards to the application of the double tax agreement signed between the two countries on September 26, 2008.

A closed FGR operated in the Netherlands can act as a pooled investment vehicle for the assets of pension funds and other investors. The closed FGR then invests these assets on behalf of those investors.

Both authorities agree that a closed FGR is fiscally transparent. As a fiscally transparent entity, all income and gains derived by the fund from the fund assets are allocated to the investors in proportion to their participations in the fund.

The two authorities have agreed that the fund manager of a closed FGR in the Netherlands, or its depository, can claim the benefits of UK double tax agreements, in lieu of and instead of the investors in the closed FGR. However, the authorities have said such claims may be subject to enquiry and, where requested, a fund manager or depository shall provide relevant information which may include a schedule of investors and allocated income relevant to a claim.

The Competent Authority Agreement states that a closed FGR may not make a claim for benefits on behalf of any investor in the closed FGR if the investor has itself made a claim for benefits in respect of the same income. If a closed FGR intends to make a claim for benefits on behalf of an investor, the fund manager or its depositary should clearly communicate this to the investor to avoid duplicate claims in respect of the same income, the Agreement states.

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