Fiscal investment institutions are subject to a 0% corporate income tax rate, provided they meet certain conditions. One of these conditions is that the fiscal investment institution only performs passive investment activities. This means that fiscal investment institutions performing real estate leasing activities are prohibited from performing any ancillary activities related to that real estate as such activities do not qualify as passive investment. Holding 100% of the shares in a subsidiary that engages in business activities also does not qualify as passive investment.

However, lessees and investors are increasingly expecting lessors of commercial real estate to offer additional services in respect of the development and management of their investment property. Under current legislation, a fiscal investment institution can only provide these additional services if they contract these services from an external party. As this is not always possible in practice, the Tax Plan 2014 has proposed relaxing the investment criterion to allow a fiscal investment institution to perform, subject to conditions, ancillary activities through a ‘normal’ taxpaying subsidiary. This would also create a level playing field with foreign tax regimes for real estate investment institutions.

The bill
It has been proposed broadening what is understood as ‘passive investment by a fiscal investment institution’ to include shareholdings in a subsidiary whose purpose and actual activities consist of performing ancillary activities directly related to the real estate investments made by the fiscal investment institution. These ancillary activities may also be performed for an entity affiliated with the fiscal investment institution (parent company, subsidiary or sister company). If they are performed for the parent company, then the parent company must also be a fiscal investment institution. Furthermore, the fiscal investment institution may act as the manager of the subsidiary. On the one hand, these rules will ensure that ancillary activities related to leasing activities will not be limited for tax reasons, while on the other hand the fact that the subsidiary is subject to tax will mean that it competes on a level playing field with other providers of such services.

The definition of ancillary activities
The examples of ancillary activities listed in the bill relate to general and technical activities provided to lessees such as:

  • cleaning services;
  • catering services;
  • reception services;
  • conference services;
  • the operation of an in-house restaurant or coffee corner (provided it caters to employees working in the particular office building).

Actively operating billboards or television screens on or in the leased investment property can also be defined as ancillary activities.

In special cases, ancillary activities can also include the provision of heating and cooling from a thermal energy storage system to third parties in the immediate vicinity, or supplying surplus energy from a solar energy plant to the electricity grid (for example, in the event of overcapacity or to comply with environmental requirements).

As stated above, these activities must be ancillary to investing in real estate (the primary activity) and must be performed by a normal taxpaying subsidiary. In addition, three other conditions need to be met:

  1. The tax value of the shares in the taxpaying subsidiary must not exceed 15% of the fiscal investment institution’s (fiscal) equity.
  2. The turnover from the ancillary activities performed by the subsidiary must not exceed 25% of the turnover (such as leasing income) derived from investing in the investment property for which the ancillary activities are performed. Each investment property must be assessed separately, whereby multiple real estate properties that function as a single real estate complex (a shopping mall, for example) are to be regarded as one investment property. The (taxable) payment for the ancillary activities performed by the subsidiary must, of course, be determined in line with arm’s length principles, i.e. as would apply between independent parties. A deemed split may be applied between the salary costs for the (taxable) activities to be allocated to the subsidiary and the salary costs for the investment activities to be allocated to the fiscal investment institution (that is, in effect, not subject to corporate income tax), without also having to include the personnel of the fiscal investment institution on the subsidiary’s payroll.
  3. The subsidiary in question is solely equity financed (apart from the usual customer and supplier’s credit). This will prevent erosion of the tax base and that the abovementioned condition 1 will, in effect, be diminished. Nevertheless, the investment in the shares of the subsidiary can be fully or partly debt-financed at the level of the fiscal investment institution, thereby taking its overall funding limit into account.

The fiscal investment institution as pan-European real estate fund
The bill will bring the Dutch tax relief regime for real estate investment institutions in line with the regimes applying in neighboring countries (where it is often possible to perform taxable ancillary activities), and will put an end to the competitive disadvantage that exists with foreign real estate funds. Under the proposed legislation, a fiscal investment institution can therefore act as the parent company of a pan-European real estate fund.