According to Lower House, the abscense of the obligation to file annual accounts gives foundations the opportunity to avoid taxes.
Will a foundation have to file its annual accounts in the future?
On September 11, only a week before this year’s Prinsjesdag, the Dutch Lower House adopted two parliamentary motions. Along with consenting to an investigation into trust sector domiciliation, the Lower House has also agreed to examine if foundations will have to file annual accounts from now on.
For legal and fiscal purposes, a foundation is considered to be a legal form which is not intended to make a profit, but to pursue other goals instead. If a foundation does make a profit, this must merely be as a result of the pursuit of the goals of the foundation, and not purposely benefitting the governors or founders of the foundation financially. Moreover, this motion only concerns foundations, not associations which, unlike foundations, have members.
Annual accounts of a foundation
Up to now, a foundation was not usually compelled to draw up annual accounts. The reason for this was simple: profit and loss accounts or balance sheets appeared insignificant for a non-profit organization. The book-keeping of a foundation generally does not focus on sales figures, purchase or sale invoices, or indeed tax submissions. Instead of this, the book-keeping primarily exists to account for monies received or spent in order to realize the goals of the foundation.
Obligation to file a foundation’s annual accounts
By compelling a legal form to file annual accounts, the Dutch Tax Authorities can check to what extent this legal form makes a profit or loss. Annual accounts are thus also interesting with regards to a foundation. When the foundation is pursuing a profit, or makes one in the course of trade, it is running a company after all. Consequently, the foundation is obliged to declare corporate tax. Additionally, a foundation that realizes a turnover on a regular basis meets the requirements of the legal form enterprise. Hence, the foundation is obliged to pay VAT.
Examination of the annual accounts will confirm if this is the case. Failing to file annual accounts can, therefore, be seen by the Lower House as a tax avoidance construction.
This is why the Lower House has approved the motion to research –within the next 8 months- the revision of the obligation on foundations to file annual accounts (Kamerstukken II, 34 566, nr.10). Along with this, the Lower House will have to submit a threshold to determine whether a foundation makes turnover instead of the allowed profit.
At the moment, various foundations and associations are already obliged to file annual accounts. This obligation to file applies when they are engaged in an enterprise which, in two successive financial years, makes a turnover of at least 6 million EUR per financial year (ANBI’s are only obliged to publish their annual accounts, not to file them). Similarly, organizations in certain sectors, such as pension funds, broadcasters, and housing cooperatives must file annual accounts.
If you wish to get more information on foundations, or the taxes that are connected to them, do not hesitate to get in touch with us.
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