What is the state of assets of Dutch family foundations?

The government has commissioned research into the size of private assets of households placed in foundations for tax reasons. This is because of the suspicion that some of these are placed in family foundations for tax reasons, where the social interest does not always seem to be paramount. What are the conclusions?

The study focused on three 3 questions:

1. How many assets are in Dutch family foundations?
2. How many assets do the directors of these foundations have?
3. Are assets in Dutch family foundations subject to tax?

Among other things, the study identified how many assets are in Dutch family foundations and how these assets are taxed.

The following summary summarises the main results:

• Of the 234,200 foundations that existed in the Netherlands at the beginning of 2022, 28% were foundations whose task was to manage the assets of others, such as an administration foundation. These foundations were excluded from the rest of the study;
• Of the remaining 169,600 Dutch foundations, 30% had at most two directors, another 9% had a board where at least half of the members had a business or family relationship with each other;
• Also, 6,000 ANBI foundations qualified as family foundations because at least half of the board was affiliated to each other; it is in principle permissible in an ANBI for board members to be affiliated;
• The family foundations described in this study collectively own at least €30.8 billion in assets, of which €19.0 billion in foundations where at least half of the board members are related and €12.5 billion in the top 50 foundations that designate family members as board members in the bylaws;
• The bulk of these (58% to 97%) consist of investment assets (securities, equity interests in companies and residential properties);
• Almost all these assets in family foundations (82% to 99.7%) are not taxed;
• The families behind these family foundations appear to be relatively often among the wealthiest Dutch people: 20% to 48% are among the top 1% wealthiest households;
• Specifically with family foundations, the Tax Administration sees the use of certain tax structures, some of which could be questioned as to whether they are socially desirable.

There is a multitude of foundations, which in almost all cases receive relatively favourable tax treatment. The social contribution of foundations can be a legitimate reason for this tax-favourable treatment. Many family foundations also contribute to our society through philanthropy.

However, if it is not (sufficiently) ensured that tax benefits accrue only to foundations that put the social interest above family interests, the favourable tax treatment may start to rub off. This becomes particularly visible when certain tax structures are used. With ANBI foundations, there are additional tax benefits, but it is mandatory that the public interest comes first. The tax authorities monitor this. Nevertheless, even with ANBIs, in some cases the question can be raised whether in practice it is always sufficiently guaranteed that the public interest comes first, for example when a family ANBI has its ANBI status revoked after cashing in tax benefits.

This favourable tax treatment of (family) foundations addresses three issues:

1. Not (usually) qualifying as segregated private wealth;
2. Qualifying (mostly) as a non-taxpayer for corporate income tax purposes;
3. In certain cases, qualification as an ANBI, with associated benefits such as the gift deduction, when the legal conditions are met.

These issues require attention, in order to properly or better ensure that tax benefits only end up where socially desirable. It is obvious to evaluate the legislation on segregated private assets, as the last evaluation dates from 2013. An evaluation study could examine, among other things, whether the current wording offers the Tax Authorities sufficient tools to tackle all forms of abuse and improper use or whether expansion or adjustment is needed. The corporate tax liability of foundations is a complex issue where careful considerations are important, and it is also important to avoid any measures going further than necessary. For ANBIs, the evaluation of the implementation of the ANBI scheme is currently taking place. This will also examine the possibilities for a settlement obligation for ex-ANBIs.

Note: So there is likely to be another review of the law on segregated private wealth, the results of which will be considered in conjunction with those of the current report.