FATCA Newsbrief The Netherlands issued Dutch Guidance on the Netherlands – US

FATCA Newsbrief
Global information reporting
22 January 2015
The Netherlands issued Dutch
Guidance on the Netherlands – US
Intergovernmental Agreement
In brief
On January 22, 2015 the Dutch government published its official Guidance on
FATCA (“Leidraad”). The Leidraad contains further clarifications on the Dutch
government’s approach to FATCA and the implementation of the Netherlands – US
IGA that was signed in December 2013.
The Leidraad provides important clarifications regarding the interpretation of certain
terms, such as customer, payments and deposit. It is expected that the Leidraad will
be amended in the near future to also include the Common Reporting Standard. The
Leidraad, to the extent possible, already links up with the CRS Commentary.
Furthermore, at the end of 2014 the parliamentary debate on the ratification of the
Netherlands – US Intergovernmental Agreement (“IGA”) and the Decree on FATCA
that were submitted to parliament in July 2014, took place in the lower house.
Please find below the most important topics.
Observations Leidraad

Customer in the Investment Entity definition
Sole Shareholder
There has been a lack of guidance with regard to the interpretation of the term
‘customer’. One of the questions during the parliamentary debate also involved the
term customer. The State Secretary of Finance (“State Secretary”) indicated that the
Investment Entity definition refers to the definition of financial institution in the
Financial Action Task Force (“FATF”) recommendations. The FATF definition states
that there has to be a client relationship.
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The Leidraad confirms that the Dutch government does not regard the relationship
between the entity and the sole director/shareholder as a client relationship.
Nevertheless, it is noted that if the investment activities of the entity are performed
by a professional third party, a client relationship exists between this professional
third party and the entity/director. In this case both the professional third party and
the entity itself qualify as Investment Entity.
Very limited group of family members
In addition, the Leidraad clarifies that if the assets of the entity consist of
investments or cash, the entity should not qualify as an Investment Entity Financial
Institution if (i) the entity has a very limited group of shareholders or participants
that (ii) are part of the same family and that (iii) do not present themselves as an
investment fund on the market. If these entities are professionally managed by a
Financial Institution they should still not qualify as an Investment Entity, but as a
Passive Non-Financial Foreign Entity (“NFFE”).
PwC Observation: The Leidraad contains a welcome clarification on the scope of
the customer definition. By excluding sole shareholders and entities held by a very
limited group of shareholders that are members of the same family, the
Netherlands aligns with the FATF Recommendations as well as the approach that is
taken by several other IGA countries.

Private Equity structure and Investment Entity
Private equity funds and other similar investment funds qualify as a Financial
Institution under FATCA. This also applies to a holding company that is part of a
private equity (or similar investment) structure or that was set up as part of the
acquisition structure. However, the Leidraad specifies that if all the shares are held
by the private equity fund or similar investment fund itself, the holding entity should
not qualify as a Financial Institution, but rather as a Passive NFFE since reporting is
already being done at the level of the fund(s).
PwC Observation: It was expected that all holding companies in a private equity
structure or similar investment structure would qualify as a Financial Institution.
This would create a large number of Financial Institutions in the Netherlands,
while at the same time most of these holding companies would have no reportable
accounts. As such, the Dutch government has decided to exclude these holding
companies from the Financial Institution definition as long as the requirements in
the Leidraad are met and all relevant accounts are reported by another entity.
Many of these holding companies could have opted for a deemed-compliant status
under the Treasury Regulations and would not have been required to report.
However, this is nevertheless a welcome clarification as under the Common
Reporting Standard, which is expected to enter into force in 2016, it will not be
possible to apply definitions from the Treasury Regulations. It is expected that this
provision will also apply under CRS. As such, this reduces the burden for several
entities and ensures that all relevant accounts and information will still be
reported.

Investment Entity
Under the IGA, an Investment Entity is defined as “Any entity that conducts as a
business..” whilst in the Treasury Regulations an Investment Entity is defined as
“The entity primarily conducts as a business…”. The Leidraad clarifies that Dutch
entities may also decide to apply the definition from the Treasury Regulations. The
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Treasury Regulations specify that 'primarily should be interpreted as more than 50%.
If an entity decides to apply this definition, the entire Investment Entity definition of
the Treasury Regulations should be applied.
PwC Observation: Under the IGA, the threshold for qualifying as an Investment
Entity Financial Institution is higher. The entity must ‘primarily’ perform such
activities. Entities that also perform other activities might therefore not qualify as
an Investment Entity and thus not be eligible to apply certain other provisions that
are only accessible to Investment Entity Financial Institutions, such as the
exception for Investment Manager and Investment Advisor. The Leidraad clarifies
that such entities may also apply the definition from the Treasury Regulations
which has a more lenient threshold, as the entity should only primarily, i.e. for
more than 50%, perform the activities.

Holding companies and treasury centres
During the Parliamentary discussions, a question was raised whether the Dutch
government, similar to the United Kingdom (“UK”), intends to treat holding
companies and treasury centers of financial groups as Financial Institutions.
The State Secretary indicated that the UK has issued a binding prescription that
holding and treasury centers of financial groups should also be regarded as Financial
Institutions (“FI”). The Leidraad contains a clarification that holding companies and
treasury centers in financial groups have the option to qualify themselves as a
Financial Institution by applying the definition of Financial Institution from the
Treasury Regulations. In this case the entity would also be required to register with
the IRS. The rationale behind this option is that according to the Dutch government
certain parties may find it more favourable to classify their holding company or
treasury center as a Financial Institution, since that would enable those entities to be
registered as Lead FI with the IRS, while other market parties were not in favour of
applying the definition from the Treasury Regulations. Therefore, the option was
introduced that Dutch parties can choose to qualify holdings and treasury centers in
a financial group as FI.
If the Dutch holding company or Dutch treasury center does not opt to apply the
definition from the Treasury Regulations, it should generally qualify as an Active or
Passive NFFE.

Bond issuance vehicles
The Leidraad provides more insight into how a bond issuance vehicle should be
qualified. It is not uncommon for a group to set up a separate entity to issue a bond
in the market. The funds collected with the issuance of the bond are then often lend
to other group companies. It was unclear whether such entities would qualify as a
depository financial institution as they may be regarded as “accepting deposits”. The
Leidraad clarifies that the issuance of the bond in the market is not regarded as
“accepting deposits”.
As such, these bond issuance vehicles should not qualify as a Depository Financial
Institution. They may however still qualify as Investment Entity Financial
Institution. However, in this case the entity may opt for an exception in the Treasury
Regulations. To the extent that the entity is part of a non-financial group and only
lends the funds to other group companies that do not qualify as a Financial
Institution, the entity may be excluded from the Investment Entity Financial
Institution definition under the Treasury Regulations.
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PwC Observation: In practice, several nonfinancial companies set up a separate
vehicle to issue bonds in order to obtain funds that can be lend to group companies.
It was unclear whether such vehicles would qualify as Financial Institutions. The
Leidraad provides more clarity in this respect. Due to the availability of the
Treasury Regulations exception, it seems that such companies may be out of scope
for FATCA to the extent that they are part of a nonfinancial group.

Insurance companies
The IGA refers to an insurance company, but does not provide a definition of an
insurance company. The Leidraad indicates that for the definition of an insurance
company reference may be made to the definition in the Treasury Regulations.

Real estate fund
Under the Treasury Regulations, it is clarified that the term financial asset does not
include real estate. As such, a real estate fund that solely directly holds real estate
may therefore fall outside of the scope of Investment Entity. The Leidraad aligns with
the Treasury Regulations. It specifies that similar to the Treasury Regulations real
estate is not considered a financial asset. As such, real estate funds that directly hold
may also fall outside of the scope of Investment Entity in the Netherlands.
PwC Observation: The Leidraad provides welcome clarity that the treatment of
(the solely direct holding of) real estate is similar to the treatment hereof under the
Treasury Regulations. As such, this not only offers consistency, but also certainty.

Cashpool arrangements
A treasury center may operate a cashpool for its group, in which case it receives cash
from group companies. The Leidraad confirms that this qualifies as ‘accepting
deposits’. As such, the treasury center qualifies as a Financial Institution. However, if
the treasury center is part of a nonfinancial group as defined under the Treasury
Regulations, it may qualify as an Excepted NFFE under the Treasury Regulations, i.e.
as an Active NFFE for purposes of the IGA.
PwC Observation: The Leidraad confirms that a treasury center that operates a
cashpool may qualify as a Financial Institution. However, to the extent that the
treasury center is part of a nonfinancial group, it may qualify as an Active NFFE
for IGA purposes, provided that it meets the requirements in the Treasury
Regulations.

Swap agreement or securities lending arrangements
An International Swaps and Derivates Association swap agreement or a Global
Master Securities Lending Agreement does not qualify as a financial account for an
Investment Entity Financial Institution. The receivable associated with the
agreement does not qualify as a debt interest.

Clearing organizations
The Treasury Regulations contain a specific rule for gross proceeds from sales settled
by a clearing organization. For a clearing organization that settles trades and
purchases of securities between members of such organization on a net basis, the
gross proceeds from sales or dispositions are limited to the net amount paid or
credited to a member’s account that is associated with sales or other dispositions of
property under the settlement procedure of such organization. The Leidraad clarifies
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that based on the provision under the Treasury Regulations, clearing organizations
may use the term net amounts instead of total gross proceeds.

Validity of documentation
The Leidraad clarifies that the Dutch self-certification forms and forms W-8 and W-9
are valid indefinitely, provided that the forms contain a US TIN where required.
Moreover, the forms are only valid to the extent that there are no changes in
circumstances.
PwC Observation: The IGA provides Dutch Financial Institutions with the
possibility of cherry picking, i.e. applying the due diligence requirements from the
Treasury Regulations for either new or pre-existing individuals or entities. For
Financial Institutions that decided to cherry pick, it was unclear whether or not the
documentation would be valid indefinitely. The Leidraad provides a welcome
clarification that both for Financial Institutions applying the IGA due diligence
requirements and for Financial Institutions applying the Treasury Regulations due
diligence requirements, the documentation remains valid indefinitely.

Payments
The Dutch IGA requires Financial Institution to report on payments made to
nonparticipating Financial Institutions (“NPFI”) in the years 2015 and 2016. The
Leidraad clarifies that the term payments normally includes any payment of US
FDAP income. However, the Netherlands agreed with the US that Financial
Institutions are only required to report on payments made to NPFIs that are an
account holder of the Financial Institution. Moreover, the information required to be
reported is the same information that a Financial Institution is required to report on
its US reportable account holders pursuant to Article 2, paragraph 2, a, sub
paragraphs 4-7 of the Dutch IGA. As such, Financial Institutions are not required to
develop separate procedures, but should identify whether any of their account
holders are an NPFI, and if so report the account(s) held by NPFIslder in the same
manner as regular US accounts.
PwC Observation: The Leidraad limits the scope of the term ‘payments’ to only
payment made to account holders that are NPFIs. Financial Institutions are
required to report the same information as they do on reportable account holders.
While in essence this requires Financial Institutions to report more information
than technically pursuant to the IGA, it is expected to reduce the burden on
Financial Institutions as this prevents them from having to set up special
procedures for reporting on this type of account holders.

Registration requirement
The Leidraad clarifies that Nonreporting Financial Institutions in the Netherlands
are generally not required to register. Under the IGA, an entity may opt for the status
of a deemed compliant Financial Institution or Exempt Beneficial Owner under the
Treasury Regulations. Such entities qualify as a Nonreporting Financial Institution
pursuant to Article 1q of the IGA. It was unclear whether entities that would opt for a
registered deemed compliant status in the Treasury Regulations would have to
register. The Leidraad clarifies that registration by a Nonreporting Financial
Institution in the Netherlands is only required if:
–
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it is subject to a registration requirement under its QI Agreement or its WP
or WT Agreement;
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–
will act as a sponsoring entity;
–
will act as a lead FI for one or more related entities;
–
is explicitly required to register under the applicable IGA;
–
has a financial account on which to report to the Model 1 jurisdiction under
the requirements of the applicable IGA.
PwC Observation: The Leidraad and Treasury Regulations seemed to contradict
each other as to whether or not Dutch Financial Institutions that apply a deemed
compliant status from the Treasury Regulations would be required to register or
not. The Leidraad provides a welcome confirmation that such Financial Institutions
are not required to register, unless one of the five situations mentioned above
applies.

US indicia
The Leidraad indicates that Financial Institutions are required to provide their
account holders with the possibility of providing a cure if they find any US indicia. As
such, if the Financial Institution finds a US indicia it should, for privacy reasons,
request the account holder for a cure before it may report the account holder to the
Dutch Tax Authorities.

Self-certification
The Financial Institution is required to obtain a self-certification from all new
individual account holders. If no self-certification is obtained within 90 days, the
account should be closed. This aligns with CRS under which regulation it will also be
required to obtain a self-certification from all new individual account holders.
The Leidraad also reconfirms that Financial Institutions have the option to ‘cherry
pick’, or in other words to apply the due diligence requirements from the Treasury
Regulations. If the due diligence requirements from the Treasury Regulations are
being applied, a self-certification is not necessarily required as Financial Institutions
may also rely on documentary evidence. It is possible that the cherry picking option
may only be made available by the Dutch government until CRS enters into force.
PwC Observation: The Leidraad indicates that Financial Institutions must
always request a self-certification from a new account holder. If they do not obtain
a self-certification, the account cannot be/remain opened. This is only different if a
Financial Institution has decided to cherry pick. It is however expected that once the
Common Reporting Standard enters into force, a self-certification for FATCA and
CRS will always be required, and that cherry picking may no longer be available.
The cherry picking option is especially favourable for Financial Institutions with a
large number of account holders that want to reach out as little as possible to their
clients until CRS enters into force. Once CRS enters into force, Financial Institutions
may be required to contact several of their clients to request for a self-certification.

Client identification for subfunds
An investment fund may consist of several subfunds, that may qualify as separate
Financial Institutions. Participants often have the possibility of investing in one or
more subfunds. Asset managers often make use of the same external party, e.g. a
transfer agent, for the identification of new clients. If an individual or entity
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participates in one or more subfunds that are managed by the same asset manager,
the external party is only required to identify the same client once. As such, existing
clients that decide to participate in another subfund are not required to fill out
another self-certification form. In addition to subfunds, this provision also applies to
funds that have the same asset manager or were the asset manager has outsourced
the client identification to the same external party.
PwC Observation: The Leidraad clarifies that in case of the (sub)funds that are
managed by the same asset manager or where the same external party does the
client identification, it is not required to repeat the client identification procedure if
the client has already been identified. This reduces the burden for funds that consist
of subfunds and for asset managers that manage several different funds. It is also
more client-friendly as this prevents the entity from having to contact the client
each time the client decided to enter into a new fund or subfund of the same asset
manager.

Financial Account
Financial Institutions may opt to apply the Financial Account definition in the
Treasury Regulations. In this case, they may also apply the exceptions to the
Financial Account definition that are provided for in the Treasury Regulations.

Interest
The interest definition in the IGA is aligned with the definition of interest under
Dutch tax law, rather than the definition of interest under the Savings Directive.

Double residency
In the event that an entity is resident in two countries, the FI should report the
FATCA information to the Tax Authorities of the country where the account is
maintained.

Direct Reporting NFFE
Dutch Passive NFFEs are unable to apply the Direct Reporting NFFE status in the
Netherlands. A Dutch Passive NFFE that is also a Direct Reporting NFFE may not be
qualified as an Active NFFE in the Netherlands, but should be regarded as a Passive
NFFE and is therefore required to provide information on its US Controlling Persons.
However if the entity is a Passive NFFE that is resident in another country – not
being the Netherlands – and qualifies as a Direct Reporting NFFE, the Dutch
Financial Institution is not required to identify and/or report the US Controlling
Persons of the Direct Reporting NFFE. The Direct Reporting NFFE that is resident
outside of the Netherlands should report the required information directly to the
IRS.
PwC Observation: In the Memorandum of Understanding that was attached to
the IGA, the Netherlands already reserved the right to not allow a direct reporting
status in the Netherlands. The Netherlands makes use of this right in the Leidraad.

Deposits
An entity may qualify as a Depository Financial Institution if it accepts deposits in
the ordinary course of a banking or similar business. Whether or not this is the case
should be determined based on the activities of the entity rather than the articles of
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incorporation. While the IGA does not provide more guidance on the terms accepting
deposits and banking or similar business, the Leidraad indicates that Dutch entities
may decide to apply the definition in the Treasury Regulations. In addition, the
Leidraad provides several examples to give Dutch entities more guidance on in which
cases one accepts deposits.
Additional references
The Leidraad can be found at:
https://zoek.officielebekendmakingen.nl/stcrt-2015-1901.html
The full notes (in Dutch) can be found at:
http://www.rijksoverheid.nl/documenten-enpublicaties/kamerstukken/2014/10/14/kamerbrief-goedkeuring-fatca-verdrag-notanaar-aanleiding-van-het-verslag.html
For more information about FATCA, please visit our web site at
http://www.pwc.nl/fatca and http://www.pwc.com/us/fatca
For more information, please contact:
Dutch Contacts
Remco van der Linden
+31 (0)88 792 7485
[email protected]
Clark Noordhuis
+31 (0)88 792 7244
[email protected]
Martin Vink
+31 (0)88 792 6369
[email protected]
Robert Jan Meindersma
+31 (0)88 792 6186
[email protected]
Sander Spoek
+31 (0)88 792 3314
[email protected]
Babette Ancery
+31 (0)88 792 4830
[email protected]
Corina Scott
+31 (0)88 792 6982
[email protected]
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