The North Holland District Court has ruled that a foundation holding the shares of a private limited company does not qualify as an ANBI. This could have been better arranged in advance.
ANBI
The abbreviation ANBI stands for ‘Algemeen Nut Beogende Instelling’ (Public Benefit Organisation). ANBIs enjoy the highest possible exemption from inheritance and gift tax: all assets acquired by and from an ANBI are exempt from this tax. In addition, donations to an ANBI are, subject to certain conditions, deductible for the purposes of income tax and corporation tax.
It goes without saying that an ANBI must meet a wide range of strict conditions. You can find them in Article 1a of the AWR Implementing Regulations. For reasons of procedural economy, the court assessed two of these: 1. an ANBI must (virtually) exclusively serve the public interest, and 2. an ANBI must maintain proper records.
(Virtually) exclusively in the public interest
‘(Virtually) exclusively’ means that the ANBI must serve the public interest for 90% or more. According to the Court, this requires an assessment of the ANBI’s own activities. The case heard by the Court concerns a foundation that holds all the shares in a private limited company.
The Court confirms that the foundation serves the public interest both through its articles of association and its actual activities. This satisfies the qualitative part of the criterion. The quantitative part is not met because the foundation’s support for the private limited company accounts for more than 10% of the foundation’s total activities. The private limited company is an independent legal entity which does not have ANBI status (nor can it obtain such status), and which is deemed to be conducting business with its entire assets and to be profit-oriented.
The foundation’s support for the private limited company (in the form of loans, grants and contributions to cover the operating deficit) is not regarded as being directly aimed at the public interest within the framework of the foundation’s objectives. This would be different if the foundation were to make contributions to specific projects of the BV for which specific support is granted on the basis of a concrete project description and budget. The foundation attempted to substantiate this with a retrospective breakdown of the costs incurred by the BV for certain projects. However, the court deemed that evidence insufficient.
Administration
The records of an ANBI must show the nature and extent of the costs of administration, other expenditure, income and the institution’s assets. The Court notes that the foundation maintains accounts, prepares annual accounts, holds board meetings and has policy plans on file. However, an audit of the private limited company’s accounts reveals that significant expenditure which should have been borne by the foundation has been recorded in the private limited company’s accounts. This is not remedied by the fact that these costs were subsequently identified and passed on to the foundation. Due to the incorrectly recorded costs, the accounts also present an inaccurate picture of the foundation’s assets.
ANBI status was rightly revoked.
On the basis of both criteria, the Court concludes that the Tax and Customs Administration’s ANBI team was right to revoke the foundation’s ANBI status. The Court agrees with the foundation that the Tax and Customs Administration must have assessed the nature of its activities when issuing the ANBI decision. However, when applying for that decision, it was not stated that part of the activities in the public interest would be carried out through a private limited company (BV). Nor was this reported to the Tax and Customs Administration when the private limited company was incorporated (shortly after the Tax and Customs Administration had issued the ANBI decision).