Single Owned Investment Entity

Single Owned Investment Entity

1. Single owner investment entities will invariable not report on themselves as they are the manager and equity interest in the same jurisdiction.
2. The only way to tackle this loophole is for the CRS to adopt the Netherlands CRS treatment of investment entities. Additional guidance with respect to the Investment Entity definition

The Leidraad aligns the CRS guidance with the existing FATCA guidance.

Investment entity - Sole Shareholder
In line with the Financial Action Task Force recommendations, the Leidraad clarifies that there is no client relationship between an entity and the sole director/shareholder. In case of an entity that has more than one shareholder or if the investment activities of the entity are performed by a professional third party, a client relationship exists and the entity is regarded as Investment Entity.

Very limited group of family members
As an exception, the Leidraad clarifies that if an entity has assets that consist of cash or investments, it should not qualify as an Investment Entity Financial Institution if:
  1. the entity has a very limited group of shareholders or participants that are part of the same family and that
  2. do not present themselves as an investment fund on the market and
  3. have neither raised nor will raise capital in the market. Even if these entities are professionally managed by a Financial Institution they should still not qualify as an Investment Entity, but as a Passive Non-Financial.

The Leidraad contains a welcome clarification on the scope of the customer definition. By excluding sole shareholders and entities held by a very limited group of shareholders that are members of the same family, the Netherlands aligns with the FATF Recommendations as well as the approach that is taken by several other CRS and IGA countries.