Update on the Dutch Fund for Joint Account (‘closed’ FGR): Asset Pooling Vehicle for International Investors and Pension Funds

Abstract

The Dutch fund for joint account being transparent from a Dutch tax perspect ive (besloten Fonds voor Gemene Rekening (hereinafter 'closed FGR') is a well-established and flexible international asset pooling vehicle for domestic and international investors and pension funds. The attractiveness of the closed FGR as international asset pooling vehicle has been further increased over the last months as the Dutch authorities concluded mutual agreements on its tax transparency with various tax treaty partners and also indicated in their recently updated Policy Note on the Dutch Tax Treaty Policy that they intend to conclude many more similar mutual agreements. Although the closed FGR may already be considered transparent from a foreign tax perspective, confirmation of such classification by means of a mutual agreement provides more certainty. Pursuant to its tax transparency, for purposes of application of the respective tax treaties, all income and gains from the closed FGR's underlying assets are thus allocated to its investors in proportion to their participations in the closed FGR and tax neutrality is achieved. By concluding these agreements, and as the closed FGR may be categorized as a collective investment vehicle (CIV), the policy of the Dutch authorities is in line with the views of the Organization for Economic Co-operation and Development (OECD) expressed in the 2010 Report on the Granting of Treaty Benefits with Respect to the Income of CIVs, which gave rise to amendments in the recently updated Commentary to Article 1 of the 2010 OECD Model Convention. In this article, the author addresses (1) the main characteristics of the FGR, (2) the international tax aspects of the closed FGR, (3) the content of the abovementioned mutual agreements, (4) the views expressed by the Dutch authorities in the updated Policy Note on the Dutch Tax Treaty Policy, and (5) the aforementioned points in relation to the recent OECD developments on CIVs. Furthermore, although the developments initiated by the Dutch authorities are very helpful and promising, the author provides recommendations to further support the closed FGR as international asset pooling vehicle.