November 8th, 2019
The Anglo-Saxon (family) trust is a legal device used to protect assets, avoid probate and defer taxes. The trust is not a legal entity but a device set up through an arrangement between the founder of the trust (the settlor) and the people who will be managing the trust (the trustees). The person or entity for whose benefit the trust was created is called the beneficiary or the beneficial owner. As to be expected with family trusts, the beneficiaries are often spouses, children, grandchildren or other family members of the settlor.
As of January 1, 2010, a new tax regime applies to assets that have been secluded from other taxable assets. These secluded private assets are qualified in Dutch tax law as so-called ‘afgezonderd particulier vermogen’ (APV). An APV is a secluded asset that serves a more than incidental private interest. An APV is not limited to trusts. The Antillean ‘Stichting Particulier Fonds’ (SPF), a (private) Foundation, an Anstalt, a Stiftung and a Genossenschaft can also be qualified as an APV. If a Dutch taxpayer, his/her fiscal partner or their underaged children have a right to an APV, this must be stated in the personal income tax return.
Because an APV is considered to be fiscally transparent, the right one has to the assets in an APV can be qualified in various ways for tax purposes. Taxation can take place in Box 1 as income, in Box 3 as an asset, through inheritance tax or through gift tax.
The main rule of taxation of an APV is that as long as the settlor is alive, the assets will be considered to be attributed to him/her. If the settlor were to pass away the assets will be attributed to the beneficiaries. Until then, the beneficiaries will not be taxed over these assets. But if only it were that straightforward….
Whether or not and where the assets should be taxed is strongly dependent on what is stated in the trust deed. As every deed is different and there are several types of trusts the outcome is always based on the relevant facts and circumstances. For instance, in some trusts an annual right to withdrawal is included. In some cases this right can be considered as a taxable annuity (Box 1). There is Dutch case law deciding contrary to this , but this again depends on the facts and circumstances. Lastly, what is stated in the relevant tax treaties should always be taken into account.
If you would like more insight in the possible tax implications an APV might have on your situation, please contact firstname.lastname@example.org or any of our other tax consultants by calling + 31 (0) 20 262 43 00