KPMG Meijburg & Co, the Netherlands comments on bare ownership constructions bill.
This is contribution number 22 by KPMG Meijburg & Co regarding bare ownership constructions bill.
The Lower House recently adopted a bill concerning taxation of "temporary" usufruct of movable and immovable assets. The date on which the bill is intended to take effect is January 1, 1996. The economic benefit received on vesting the usufruct will be fully taxable. In certain cases this also applies to subsequent transfers of the usufruct.
The bill comprises a new definition of the concept "temporary". At the core of the new provisions is the notion that each beneficial right is temporary, unless
- the beneficial right is perpetual, or
- only ends on the death of the beneficiary, provided that at the time of vesting of the beneficial right the beneficiary is younger than 50.
If a B.V. is the beneficial owner of the usufruct, the vesting of the usufruct will always be a taxable event, even if the right is vested for the maximum legal term of thirty years. Another element of the bill is that those in possession of an asset on which a temporary usufruct is vested (the "bare" owner) will be taxed on the accrual of the value of the bare ownership. There are two important exception to this main rule. First of all, children will not be taxed on the accruals basis when parents transfer their house to their children, subject to a temporary usufruct clause. Another important exception is the following. The bare owner will not be taxed if he himself initially vested the temporary beneficial right. However, this does not apply, and consequently the value accrual will be taxed, if the bare owner has vested a thirty-year beneficial right before January 1, 1996 in favour of a B.V. Such a transaction is, in principle, tax-free under the "old" regime. The bill also contains certain complicated regulations for beneficial rights vested or alienated during inheritances or divorce procedures.
By virtue of the new law, which becomes effective as of January 1, 1996, bare ownership constructions will in general become less interesting. However, since the Supreme Court ruled earlier this year that a bare owner can in principle gradually depreciate the full value of the underlying asset, the levy on the accrual of the value of the underlying asset will, be more or less eliminated. As a result bare ownership constructions will still be worth considering, particularly with respect to saving succession duties.
An interesting point is that the budgetary proceeds of the new law will be used for the abolition of wage tax on employee savings schemes in so far as the wages consist of employee's shares, as well as reduction of the wage tax by 20 to 10 per cent on profit sharing schemes.
This message is most likely to be relevant for taxpayers having a usufruct or owning property on which a usufruct has been vested.
Further information can be obtained from mr Alfred GM Groenen, MCL, KPMG Meijburg & Co, Amsterdam (Netherlands); fax 31 (20) 656 1247
Keywords: Netherlands / Dutch / Europe / EC / EU / European Union / KPMG Meijburg & Co / inward investments / MNE / usufruct / real estate
Note: The content of this contribution is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
