FJAs to claim US tax benefits collectively
NETHERLANDS - Changes in cross-border tax processing means closed Dutch funds for joint accounts (FJAs), in which pension funds are the sole participants, should now find it easier to claims US dividend tax benefits, the Dutch Finance Department has said.
Until now, pension schemes had to apply individually to gain the benefits of an existing double taxation treaty signed in 2000, which gave pension funds full exemption from taxation at source of US dividends through these schemes.
This change, however, means the pension fund's claims can instead be made through their security services provider.
"The application can be done centrally by the asset manager or the custodian now," Micha Muntinga, senior tax counsel at Aegon Asset Management explained.
Muntinga expects a cost-saving effect from the change, but says it is difficult to predict whether this will be reflected in custodians' fees.
"The good news for the pension funds is they can be assured they will receive the tax benefits they are entitled to," he pointed out.
The Aegon counsel estimates Dutch pension funds have invested "dozens of billions of euros" in US equity through FJAs.
Moreover, there could also be additional pricing benefits to the use of FJAs as a result of these tax handling changes, suggest officials at pensions provider and asset manager Mn Services.
"Pension funds pooling their securities through an FJA can exert more buying power on the US market," commented Mn Services spokesman Geert-Jan Cath.
"An increase in investments via this tax-transparent vehicle is not unlikely."
The FJA, or ‘fonds voor gemene rekening', was endorsed by the Dutch Finance Department as a tax-transparent vehicle for international asset pooling last year.