Dutch STAK in scope of CRS


Summary

The Common Reporting Standard states that any structure that is functionally equivalent to a trust, such as a foundation, must be treated as a trust. There is no distiction between types of trusts or types of foundations.

The purpose of a trust or foundation is to separate legal / beneficial ownership from the economic interest.

A Dutch Foundation, known as a STAK (Stichting AdministratieKkantoor), is a voting trust foundation. The purpose is to separate the legal / beneficial ownership from the economic benefit.

As such, the STAK is to be treated as a trust by the Common Reporting Standard, no matter how the economic benefit is established (loans, depository rights by agreement, etc.
For CRS purposes a Dutch STAK is functional equivalent to a trust
STAK (Stichting Administratie Kantoor) is a Dutch Depository Foundation.
1. STAK is a type of foundation holding investments and shares in a company as legal owner, while economic interest lies with another
2. Purpose of a STAK The purpose of the Dutch STAK construction is to separate the economic ownership of the shares from the legal ownership.

How does it work?

The Stak Foundation needs to become owner of the shares. The STAK foundation therefore enters into a trust-like agreement with the legal owner of such shares, stipulating that the shares will be transferred into the legal ownership of the STAK foundation to administer these shares for the benefit of the transferor and against the simultaneous issuance of – abstract – depository receipts (also called certificates) by the Stak foundation. This is an obligatory agreement, which has to be followed under Dutch law by a transfer of the legal ownership of the shares.

Finally, the administration terms and conditions are also laid down in a deed. There are therefore three deeds. The transactions are then also recorded in the share register of the BV and the register of depository receipts held by the STAK. The details of the depository receipt holders are not made public. The foundation is registered in the Trade register of the BV as sole owner of the BV shares where the BV has only one shareholder. The Stak foundation has become the legal owner of the shares and will exercise the voting rights while the depository receipt holders will receive the dividends.
3. Dutch taxation of the Stak foundation Holding portfolio investments or shares in a holding is not a business activity. The STAK is deemed transparent for Dutch tax purposes. The STAK is therefore not subject to Dutch corporate income tax. Any profits or capital gains will be taxed at the level of the beneficiaries’ country(ies) of residence.

Assuming the depositary receipt holders are not resident and do not trade or conduct a business or have a permanent establishment or permanent representative in the Netherlands and the investment is not located in the Netherlands, there will be no Dutch corporate income tax or other tax liability.
4. Trust like Principles of the STAK
  • STAK acquires and manages and owns assets in its own name.
  • It issues certificates that represent the full economic value of the assets.
  • The certificates are issued under a contractual, not a corporate legal, relationship.
  • The terms for this relationship are written down down in the Trust Conditions.
  • The Trust Conditions can be drafted as desired for each particular case. There are no legal constraints/requirements apart from the general provisions in Dutch contract law.
  • Register of depository receipts is non public, only maintained by the STAK's board of directors
5. Incorrect CRS categorisation by Dutch lawyers of STAKs The STAK is not an corporation according to the CRS

Dutch lawyers often have the incorrect interpretation that according to the CRS, the STAK is a NFE corporation and not a NFE Foundation or trust. Consequently, Dutch lawyers advise that the reporting FI maintaining the STAKs assets will only report on the controlling persons of the STAK which is any individual which has more than 25% of the Depository rights of the STAK. They support this mistaken interpretation by showing Netherlands Tax Authority confirmations that the STAK is the beneficial owner. Therefore the STAK as an entity need only show the controlling persons which are the same as any other entity, i.e. according to Dutch AML is anyone with more than 25% economic rights. Thus, they incorrectly surmise, that if say 5 individual family members were assigned the depository rights by the STAK with every member receiving less than 25% rights%, then no controlling person would be reportable by the FI as a controlling person.

Unfortunately, this is all incorrect.
6. The STAK must be treated as functional equivalent of a trust

The OECD CRS and commentary mentions foundations twice:

  1. Page 15 par (20) - Reportable accounts include accounts held by individuals and entities, which includes trusts and foundations...
  2. Page 99 - par (136) - In relation to legal persons that are functionally similar to trusts (e.g.foundations), Reporting Financial Institutions should identify Controlling Persons through similar customer due diligence procedures as those required for trusts, with a view to achieving appropriate levels of reporting.


  3. The assignment of depository rights is done on a trust like basis:
    • The certificates are issued under a contractual, not a corporate legal, relationship. The terms for this relationship are written down down in the Trust Conditions.
    • The Trust Conditions can be drafted as desired for each particular case. There are no legal constraints/requirements apart from the general provisions in Dutch contract law.
    • There is no doubt the STAK is a functional equivalent of a trust. Therefore according to the controlling persons are the equivalent of a settlor in a trust. These are all the persons being assigned depository rights.
7. So how does treatment of a STAK for CRS purposes as a functional equivalent of trust differ from controlling persons of a corporation?

For CRS purposes, the definition of controlling person does not rely on AML at all. See CRS commentary page 199 par 134 :
    In the case of a trust, the term “Controlling Persons” means the settlor(s), the trustee(s), the protector(s) (if any), the beneficiary(ies) or class(es) of beneficiaries, and any other natural person(s) exercising ultimate effective control over the trust. The settlor(s), the trustee(s), the protector(s) (if any), and the beneficiary(ies) or class(es) of beneficiaries, must always be treated as Controlling Persons of a trust, regardless of whether or not any of them exercises control over the trust.

  1. There is no minimum threshold for controlling persons for trusts, eg no 25% minimum holding of shares. Every single assignment of DR is a reportable person. If they are reportable jurisdiction persons they will be reported (unless they are excluded reportable persons such as listed company, government entities or other Financial Institutions).
  2. Furthermore, unless the reporting jurisdiction aligns the reporting of NFE trusts with FI trusts, all discretionary beneficiaries will be reportable regardless if there is a distribution - CRS implementation handbook pg 84 par 229.