Foundations in the Netherlands in general do not have beneficial owners or beneficiaries. Currently a legislatory proposal is in procedure in the Netherlands, in regard of ‘beneficial owners’ of foundations, creating a new obligation for foundations to have a register of distributions (uitkeringenregister). The explanation by the Minister of Finance to this proposal is meagre. The Dutch Minister refers to a report on the Netherlands by the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes (Global Forum) of 2011, followed by a peer review in 2019.
It is annoying that these OECD-reports, that are basis for this legislative proposal, were not submitted to the parliament and are not freely available to scrutinize them (you have to pay OECD to get the reports as files).
I read the 2019 report online at the OECD site and was surprised on the findings of this organisation. It looks as if the rapporteurs were inadequadetely informed on Dutch law. The reader can judge for himself/herself, because a quotation follows.
Quotation from the 2019 report on the Netherlands, pagina 25-27 [*]:
A.1. Legal and beneﬁcial ownership and identity information
Jurisdictions should ensure that legal and beneﬁcial ownership and identity Information for all relevant entities and arrangements ls available to their competent authorities.
43. The 2011 Report concluded that the legal and regulatory framework for the maintenance of ownership and identity information was in place in the Netherlands and the Caribbean Netherlands for many relevant entities and arrangements; however, improvements were needed to ensure the identification of (i) owners of bearer shares of public limited liability companies; (ii) foreign limited partners of limited partnerships; and (iii) all beneficiaries of foundations. The 2011 Report concluded that the monitoring and enforcement of legal requirements by the Netherlands authorities ensured the availability of identity and ownership information in practice. Element A.1 was determined to be in place but in need of improvement and rated Largely Compliant with the EOIR Standard.
46. Foundations in the Netherlands are not systematically required to keep identity information concerning all beneﬁciaries. An obligation should be established in both the European Netherlands and the Caribbean Netherlands for foundations to keep identity information concerning all beneficiaries.
47. Under the 2016 ToR, beneﬁcial ownership of relevant entities and arrangements is required to be available. The Money Laundering and Terrorism Financing (Prevention) Act as amended in 2018 (the AML Act) is the central piece of the Netherlands framework for ensuring the availability of this type of information. Beneﬁcial ownership information is required to be available where any relevant entity or arrangement establishes a relationship with a person obliged to conduct customer due diligence under the AML Act. The scope of AML obliged persons in the Netherlands is broad, covering financial institutions, tax advisers, accountants, trust and company service providers, and notaries and lawyers when providing certain services. Although many Netherlands‘ entities will have a relationship with a Netherlands” AML obliged person when carrying on their activities. there is currently no legal requirement that all of them have a relationship with an AML obliged person at all times.
48. The deﬁnition of beneﬁcial owner in force in the Netherlands until 25 July 2018 for different entities and arrangements did not fully meet the international standard. Effective 25 July 2018, a Decree introduced a new beneficial owner definition (to meet the requirements of the 4th EU AML Directive).
49. Availability of beneﬁcial ownership is supervised and enforced by the different AML supervising authorities in the Netherlands. The depth and frequency of the supervision is generally considered adequate.
50. In addition to AML Legislation, tax law also contributes to the identification of beneficial owners to a certain extent. as it requires companies to disclose their substantial interest holders. A substantial interest may be held through direct or indirect interest. This may provide some relevant information, even though the definition ofsubstantial interest holder does not mirror the one of beneficial owner under the standard.
51. The supervision by the tax authorities concerning the substantial interest holder requirements appears to be adequate.
52. Overall, the availability of ownership information was conﬁrmed in the Netherlands’ EOI practice. During the review period, the Netherlands received approximately 600 requests that included an inquiry for legal andf or beneficial ownership information. Most of these requests referred to companies and a few referred to partnerships and foundations. No request was received in connection with bearer shares (or companies that had issued bearer shares) or trusts. Also no requests were received in connection with entities and arrangements in the Caribbean Netherlands.
Based on this the rapporteurs say on page 25 that their finding (‘underlying factor’) is:
Foundations in the European Netherlands and the Caribbean Netherlands are not systematically required to keep identity information concerning all beneﬁciaries.
and their recommendation is:
An obligation should be established In both the European Netherlands and the Caribbean Netherlands for foundations to keep identity information concerning all beneficiaries.
[*] Please note it is a text after OCR, so there might be some misspellings.
- In the report the anti-money laundering (‘AML’) beneficiary / beneficial owner (‘ubo’) is mixed up with the fiscal ubo. These are completely different concepts.
- Under Dutch law persons can not be the owner of a foundation. Most Dutch foundations have no beneficial owners or beneficiaries in the fiscal sense (OECD’s report is about tax!). They are schools, hospitals, etcetera and do not do any distributions to people. So it is not surprising there few requests (see par. 52) in regard of beneficiaries of foundations.
- In AML legislation the concept of beneficiary is extended to managing directors (statutair bestuurders). In most cases these directors will be registered as the ubo of the Dutch foundation. This is a wrong decision made by European AML-legislators. It is in violation of basic European legal principles and unnecessary because managing directors are already registered with the commercial register (trade register).
- The OECD reports are an inadequate basis for the legislative proposal. (Apart from other objections.)
What do you think?
I am interested to hear what my readers think of the recommendations of the OECD rapporteurs.
NB Of course I am also interested to get the full reports as files.
- Explanation, Memorie van toelichting Implementatiewet registratie uiteindelijk belanghebbenden van vennootschappen en andere juridische entiteiten, April 2019.
- Global Forum on Transparency and Exchange of Information for Tax Purposes: The Netherlands 2019 (Second Round).
- Global Forum on Transparency and Exchange of Information for Tax Purposes, Peer Review Report The Netherlands, 2011, available through this page.
This article was also published on the company law blog.