Trusts, DAFT Migrants and Dutch Taxation: A Perfect Storm?

US entrepreneurs relocating to the Netherlands under the Dutch-American Friendship Treaty (DAFT) often bring wealth held in a Revocable Living Trust. Recent Dutch case law and new entity classification rules have made the tax treatment of these trusts considerably more uncertain.

• On 14 February 2025, the Dutch Supreme Court ruled that the transparency doctrine must be tested before the APV regime can apply.
• Since 1 January 2025, new entity classification rules mean a US trust that falls outside the APV regime may instead be treated as an independent Dutch corporate taxpayer.
• That could reclassify a beneficiary's trust interest as a Box 2 shareholding, raising open questions on step-up, exit tax and valuation.
• No official guidance exists yet on how these rules interact — requesting advance certainty is recommended.

Lately, a growing group of ambitious American entrepreneurs has been exploring relocation to the Netherlands. Thanks to the Dutch-American Friendship Treaty (DAFT), entry barriers are low and the Netherlands presents itself as open, stable and business-friendly. Historically, this resembles earlier waves of entrepreneurial migration that significantly boosted the Dutch economy.

However, for US entrepreneurs migrating with substantial private or business wealth held in trust structures, the Dutch tax landscape has become increasingly difficult to navigate. Recent legal developments and existing far-reaching anti-abuse measures result in a complex and potentially risky tax puzzle.

The core question: how are US trusts taxed in the Netherlands?

In practice, many US entrepreneurs migrate with assets or even entire businesses held through a Revocable Living Trust. Typically, the settlor is also the trustee and retains broad powers over the trust assets, while legal ownership has formally been transferred to the trust.

At first glance, one might expect the Dutch APV regime (separate private assets regime) to provide a clear framework, as it does when the settlor does not have full control. Yet recent case law and legislative changes have disrupted that assumption in case the settlor, trustee and beneficiary are the same person.

Transparency doctrine versus the APV regime

Dutch tax law has long recognized a transparency doctrine, developed by the Supreme Court in the 1980s (HR 30 October 1985, ECLI:NL:HR:1985:AC9086). Under this doctrine, assets held by a foundation or trust may be attributed to an individual if that person can dispose of those assets “as if they were their own” (the power-of-disposal test). One can easily imagine this is quite difficult to prove for the Tax Authorities and in the past, this has led to long and difficult discussions. To avoid tax avoidance using for example irrevocable trusts, a new anti-abuse measure was introduced in 2010: the APV-regime (article 2.14a of the Dutch Income Tax Act 2001).

The APV regime was meant to provide a robust statutory tool to combat tax avoidance involving foreign trusts and foundations. Its scope is extremely broad, and its effects are far-reaching: assets settled into an APV are typically attributed back to the settlor (or grantor) for Dutch income tax purposes but can also be allocated to the successors of the settlor, regardless of the successors’ power to use the assets, with effect for other tax acts such as gift and inheritance taxation.

For years, practitioners assumed that the APV regime effectively replaced the transparency doctrine. The question is whether that assumption still holds.

Supreme Court shockwave (February 2025)

In a landmark decision of 14 February 2025 (ECLI:NL:HR:2025:241), the Dutch Supreme Court ruled that the transparency doctrine must be applied first, before considering the APV regime. If the power-of-disposal test is met, the assets are not considered “separated” assets at all—and therefore fall outside the APV regime altogether. The case itself concerned a Curaçao private foundation (SPF) rather than a trust, but the reasoning turns on the structure of the APV regime rather than on the legal form involved.

This ruling alone is already impactful. But when combined with the new Dutch entity classification rules that entered into force on 1 January 2025, the consequences are even more diffuse.

The new classification rules: from attribution to corporate taxation?

Under the new legislation, foreign legal forms that are not comparable to Dutch entities are classified using either the fixed method or the symmetrical method. The fixed method applies where the entity is resident in the Netherlands, in which case it is always treated as an independent taxpayer for Dutch corporate income tax purposes (article 2(1)(h) of the Dutch Corporate Income Tax Act 1969). The symmetrical method applies where the entity is resident abroad; the Netherlands then follows the treatment given to it by the state of residence.

A US trust is generally regarded by the Dutch tax authorities as a non-comparable legal form. If such a trust is effectively managed from the Netherlands — as may well be the case when a DAFT migrant acts as trustee — the trust can be deemed Dutch tax resident.

Here is where things become uncomfortable. The trust does not qualify as an APV (due to transparency), and the APV exception to the deemed-business rule in article 2(6) of the Corporate Income Tax Act therefore does not apply. Under the fixed method, the trust may be treated as a non-transparent entity subject to Dutch corporate income tax. As such, the beneficiary’s interest in the trust may be reclassified as a shareholding, potentially triggering Box 2 taxation (substantial interest regime). This differs from the usual attribution to the settlor and has an effect for the corporate income tax as well, as the trust would be required to file a Dutch corporate income tax return.

This outcome raises a series of unresolved — and highly practical — questions:

• Is a step-up in basis granted upon immigration, and if so, when?
• Does a later emigration trigger an exit tax on unrealized gains?
• How should a trust interest be valued for Box 2 purposes?
• What happens if trust assets consist of operating companies rather than passive investments?

Alternative possibility

It could also be argued that the transparency doctrine the Supreme Court reiterated essentially applies even prior to the application of the corporate income tax, resulting in full transparency, so no APV-regime application and no corporate income tax application; Dutch taxation is based on the assets of the trust that are either included in Box 1, 2 or 3 depending on their individual nature.

What now?

At present, there is no clear guidance from the tax authorities or the State Secretary on these issues. If in doubt, requesting certainty in advance can be advised.

Following the Supreme Court’s ruling, it is now up to the Dutch State Secretary to clarify how the transparency doctrine, the APV regime and the new classification rules interact. Until then, analyzing the personal, corporate, gift and inheritance tax consequences in each individual situation remains paramount.

What Port Sight Tax can do for you!

At Port Sight Tax, we actively assist in navigating this evolving landscape before uncertainty turns into unexpected exposure. We can analyze your trust structure and request certainty in advance on your behalf prior to your migration, so you know what you are walking into.

Want to know more? Feel free to book an introductory call on the house!