In this article we discuss position paper KG:211:2023:1. In this position paper the Knowledge Group on tax liability and the qualification of legal forms of the Dutch tax authorities answers the question whether in its view a Gemeinnützige GmbH/ Stiftung GmbH/gGmbH that was incorporated under German law is comparable with a Dutch BV or with a Dutch foundation.
Pursuant to Article 10, Paragraph 2 of the Dutch Dividend Withholding Tax (DDWT) Act, the qualification is related to one of the requirements for a refund of Dutch dividend withholding tax. Namely, the requirement that a foreign entity may not be subject to Dutch corporate income tax if the entity would have been a resident of the Netherlands.
Does a Gesellschaft mit beschränkter Haftung (hereinafter referred to as: GmbH) that was incorporated under German law, and which for tax purposes in Germany is recognized as being “gemeinnützig” (of public benefit) and is therefore also referred to as a “gGmbH” or “Stiftung GmbH”, remain a GmbH that is comparable to a private limited company that was incorporated under Dutch law (hereafter: BV) for the purposes of the Dutch Corporate Income Tax (DCIT) Act, the Dutch Individual Income Tax (DIIT) Act, the DDWT Act and the Dutch Withholding Tax Act 2021? Or is such a gGmbH (or Stiftung GmbH) comparable with a foundation that was incorporated under Dutch law (a stichting)?
A gGmbH (or Stiftung GmbH) is a GmbH that is incorporated under German civil law. A GmbH is comparable to a BV that is incorporated under Dutch law. The recognition for German tax purposes as being “gemeinnützig” and the related terminology such as “gGmbH" or “Stiftung GmbH” do not mean that this GmbH has to be compared with a Dutch stichting. After all, by Dutch standards a BV that has the characteristics of a stichting also remains a BV.
From the consideration of the tax authorities
For this qualification the Dutch tax authorities had access to the following documents:
- Gesellschaftsvertrag taxpayer (hereafter: the articles of association)
- Bürgerliches Gesetzbuch (Civil code) of Germany;
- Gesetz betreffend die Gesellschaften mit beschränkter Haftung (hereafter: GmbH-Act);
- Abgabenordnung (Tax code) of Germany (hierna: AO);
- Freistellungsbescheid (notice of exemption) 2018 for the German Körperschaftsteuer (corporate income tax) in the name oft he taxpayer;
- Burgerlijk Wetboek (Civil code) of the Netherlands.
A so-called Stiftung GmbH or gGmbH is not a special legal form. It is a name used for a GmbH that carries out activities of public benefit (gemeinnützige). Under German law, it is a GmbH and GmbH-Act applies.
Following the Court Appeal, in 2005 the Dutch Supreme Court ruled that a GmbH under German law clearly possesses the characteristics of a limited liability company and acts as such in economic activities (HR 01-04-2005, ECLI:NL:HR:2005:AE6419). More specifically, the GmbH is comparable to a private limited liability company that was incorporated under Dutch law.
If a GmbH carries out activities of public benefit and meets the conditions as set by German tax law, it is exempt from German commercial tax, German corporate income tax, the German solidarity surcharge, German property tax and German gift tax. Such GmbH can invoice its services against a reduced VAT rate or without VAT. These terms are laid down in Sections 51 through 68 of the AO. If the conditions are met, the GmbH receives a decree, a so-called “Freistellungsbescheid”.
The aforementioned conditions include a.o. that the company pursues a charitable purpose, that the business activities serve to fulfill the purpose of the company, that the profits may not be distributed to its shareholders and, in the event of dissolution, the assets may not be distributed to the shareholders, unless the shareholder redeploys these assets for charitable purposes.
The German tax recognition “gemeinnützig” does not mean that the GmbH should be compared with a Stiftung (foundation), despite the fact that the Stiftung GmbH or gGmbH (statutory) may have characteristics of a Stiftung. After all, a BV incorporated under Dutch law will also remain a BV according to Dutch standards if it has the characteristics of a foundation and as such will not be treated differently.
The qualification as either comparable to a Dutch private limited liability company or as comparable to a Dutch foundation (stichting) is important because a Dutch resident foundation is in principle not subjected to Dutch corporate income tax unless it has a business with an annual revenue exceeding EUR 15.000. Whereas a private limited liability company (BV) that was incorporated under Dutch law in principle is subjected to Dutch corporate income tax unless it activities consist out of a number of specific activities that are mentioned in the Dutch corporate income tax Act.
Consequently the qualification as either comparable to a Dutch BV or as to comparable to a Dutch stichting might also influence the possibility to get a refund of Dutch dividend withholding tax that was withheld over a dividend distribution that was received from a legal entity that is a resident of the Netherlands.
The full Dutch text of the position paper can be found here.
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