Taxation Dutch resident investors

Taxation Dutch resident investors The effective tax rate on ishares investments depends on the personal circumstances of each shareholder. The content in the following paragraphs is for information purposes only and no reliance should be placed on it for any investment decision. Therefore, it is strongly recommended that investors consult their own tax advisor to ascertain their individual tax situation. ishares offers a range of Exchange Traded Funds (ETFs) with different domiciles, including Ireland (Dublin), Germany and the US. The discussion below is focussed on investor level taxation of Dutch investors investing in ishares. Index Taxation of ETFs Overview Taxes at investment level Taxes at fund level Dutch taxation of investors

Taxation of ETFs Overview This guide sets out the Dutch taxation of Dutch resident investors that are either individuals or companies. It does not cover any other types of investors such as funds resident in the Netherlands or life companies. Further, ishares ETFs are domiciled in various jurisdictions. However, this guide is focussed only on investments in Irish, German and the US-domiciled ishares. As with other mutual fund investments, tax has to be considered at three levels: (a) Investment level: Portfolio level withholding tax 1 is an important consideration when investing in some asset classes (US or Eurozone equities, for example). The rate of withholding tax depends in part on the double tax treaty 2 status of the holder. For example, where the holder is an Irish fund, withholding tax is in some cases beneficially reduced by the double tax treaty that Ireland has with the investee country, but not in others. (b) Fund level: Offshore funds typically pay no tax at fund level, either on their portfolio income or by way of withholding. (c) Investor level: Each investor also has his own tax position to consider, and of course this can be affected by the choice of investment vehicle. (A full study of the tax efficiency of an investment strategy should consider whether any withholding tax suffered at portfolio or fund level can be offset against the investor s domestic tax.) An investor should consider taxes at each of these three levels to determine the overall tax cost of their investment in an ETF prior to investing. 1 Withholding Tax: a tax levied on income from securities owned by a non-resident (interest and dividends). 2 Double Taxation Treaties: agreements between two states which are designed to: - protect against the risk of double taxation when the same income is taxable in two states - provide certainty of treatment for cross-border trade and investment - prevent excessive foreign taxation and other forms of discrimination against UK business interests abroad

1. Taxes at investment level At the underlying investment level, the type of the investment (such as equity 3 or fixed income investments 4 ) and the country in which the investment is situated will have an impact on whether the ETF is subject to any local taxes on income or gains received. These portfolio level taxes, i.e. withholding taxes on income and capital gain taxes, are an important consideration when investing in various asset classes (equities or fixed income investments, for example). This tax mainly arises in the country where the underlying equity or debt securities are situated. The rate of such taxes depends in part on the double tax treaty between the country where the underlying securities are situated and the country in which the ETF is domiciled. For example, an Irish ETF investing in US equities may suffer only 15% US withholding tax on US dividends, unlike a fund domiciled in Luxembourg that may suffer 30% US withholding tax on the same dividend, merely because Luxembourg funds are not eligible to access the tax treaty between Luxembourg and the US. Where an ETF invests in an index comprising of various equity or fixed income investments located in different jurisdictions, the effective rate of withholding tax would have to be calculated based on various factors. One of the factors is the tax rate applied by each country, whether or not based on the tax treaty. 1.1 Irish domiciled ishares These are structured as corporate vehicles and are therefore, able to access many tax treaties that have been negotiated between Ireland and various other jurisdictions. Therefore, where equity dividends received by an Irish domiciled ishares may suffer withholding tax at lower treaty rate, interest received on fixed income investments may not suffer any withholding tax at all if the treaty so provides. Where no tax treaty exists between Ireland and the jurisdiction where the underlying investment is situated, local withholding tax rate may apply which is usually higher than the tax treaty rates. 1.2 German domiciled ishares ishares are structured both as transparent vehicles (KAG s 5 ) and corporate vehicles (InvAG s 6 ). The withholding taxes at investment level may differ substantially with the legal structure of the fund. Generally, ETFs structured as transparent vehicles (such as Luxembourg or French FCPs 7 ) are not able to access tax treaties. For example, a German KAG fund suffers a 30% withholding tax on US dividends, unlike an InvAG which suffers a 15% tax. 1.3 US domiciled ishares US domiciled ishares structured as 1940 Act funds are able to access the whole range of tax treaties between the US and the respective underlying jurisdictions. However, they benefit from nil US withholding on both fixed income and equity dividends under the local US tax law. 3 Equities: stocks 4 Fixed Income Investments: bonds 5 KAG: Kapitalanlagegesellschaft, a Capital Management Company. 6 InvAG: an Investment Company with variable capital, which must be at least EUR 300.000. 7 FCP: Fonds Commun de Placement, open-ended retail funds.

2. Taxes at fund level At the fund level it is important to note where the fund is domiciled and whether or not it pays tax in its domicile as this may have implications on the tax treaties that are available and whether taxes will be withheld on the distributions of the fund. ishares typically pay no tax at fund level. The withholding tax at fund level has been explained for various fund domiciles as follows: 2.1 Irish domiciled ishares Ireland does not impose any withholding taxes when Irish funds distribute income or gains to Dutch investors. 2.2 German domiciled ishares Most distributions made by German ishares are not subjected to German withholding taxes when paid to non-german resident investors. However, Germany imposes 26.375% withholding tax on both distributing funds (to the extent there are German dividends received by the fund) as well as accumulating funds. The investors that are resident in treaty countries (such as the Netherlands) and that invest in ETFs with a high concentration of German equities in the portfolio, may consider filing reclaims with German tax authorities in order to obtain the benefit of a reduced treaty rate (generally 15% under the Netherlands / Germany double tax treaty). 2.3 US domiciled ishares The US generally imposes 30% US withholding taxes when a US domiciled fund makes a distribution to the investors. However, this can be reduced to 15% or nil, provided the investor is eligible for the benefits of tax treaty between the US and the Netherlands and provides form WBEN to the US tax authorities. In addition, the US tax legislation also provides for a qualified interest income relief according to which no US withholding tax is applied on the distributions to the extent the US domiciled ETF derives income from US treasury or US corporate bonds. Investors should also be mindful of the Foreign Account Tax Compliance Act (FATCA) which will come into force in transitional phases from 1 January July 2013 to 1 January 2015. The intention of this US tax legislation is that the details of US investors holding assets outside the US will be reported by financial institutions to the US tax authorities, as a safeguard against US tax evasion. As all US securities held by a financial institution that does not enter and comply with the regime will be subject to a US tax withholding of 30% on gross sales proceeds as well as income, investors may need to provide increased documentation. 2.4 EU Savings Directive Fixed income ETFs domiciled in the EU (Irish domiciled and German domiciled ishares in this case) may be required to do reporting under the EU Savings Directive. This reporting is required when paying agent located in one EU country (such as Ireland or Germany) makes a payment to an individual investor resident in another EU country. In the absence of tax reporting, the paying agent may be obliged to apply a withholding tax (generally 35%) to the payments made. Currently, all the German and Irish domiciled fixed income funds do the EU Savings tax reporting. Therefore, no withholding tax of 35% should apply to payments made by a paying agent.

3. Dutch taxation of investors 3.1 Dutch taxation of individual investors Dutch individual investors are subject to 30% tax on a deemed yield/return. The deemed yield/return is calculated as 4% of the average of market value of savings and investments at the start and end of the calendar year. Therefore, the actual capital gains and receipt of distribution are irrelevant. 3.2 Dutch taxation of corporate investors Corporate taxpayers are subject to tax at 25.5% on their taxable profits determined according to Dutch tax principles. This effectively means that the investment in the ETF is valued at the lower of historic cost price and market value and the income is recognised on an accruals basis. 3.3 Dutch tax credit Where a Dutch investor suffers German or US withholding taxes on receiving distributions from German or US domiciled ishares, such investor should be able to offset that withholding tax against his Dutch income or corporation tax liability on that distribution. Also, whether or not a Dutch investor can offset withholding taxes suffered by the ETF itself at the portfolio level, would depend on whether or not the ETF is considered as a separate legal entity. Where the ETF is considered separate from its participants, the participants would not generally be able to offset any portfolio-level withholding taxes against their own tax liabilities. Since Irishdomiciled and US-domiciled ishares in particular are set up as corporate structures, Dutch investors may not be able to offset underlying withholding taxes against their own Dutch tax liability.

Appendix A Summary of investor taxation* Investor type Irish-domiciled ishares German-domiciled ishares US-domiciled ishares Dutch resident individuals Dutch resident corporate to 30% tax on 4% of average annual yield/return, irrespective of the actual distributions received or actual capital gains realised No Irish withholding tax on distributions In scope for EU Savings tax reporting to 25.5% tax according to Dutch accounting principles No Irish withholding tax on distributions to 30% tax on 4% of average annual yield/return, irrespective of the actual distributions received or actual capital gains realised No German withholding tax, unless dividends derived from German equities. This withholding tax can be offset against Dutch income tax liability In scope for EU Savings tax reporting where the fund is structured as an InvAG to 25.5% tax according to Dutch accounting principles No German withholding tax, unless dividends derived from German equities. This withholding tax can be offset against Dutch corporate tax liability where the fund is structured as an InvAG Distributions and gains subject to 30% tax on 4% of average annual yield/return, irrespective of the actual distributions received or actual capital gains realised 15% US withholding tax if W-8 BEN provided, otherwise 30% US withholding tax. This withholding tax can be offset against Dutch income tax liability. Outside the scope of EU Savings Directive Investor to be mindful of FATCA Distributions and gains subject to 25.5% tax according to Dutch accounting principles 15% US withholding tax if W-8 BEN provided, otherwise 30% US withholding tax. This withholding tax can be offset against Dutch corporate tax liability Investor to be mindful of FATCA * Notes for consideration: The above table is for illustration purpose only and is not an exhaustive list of all taxes suffered by Dutch resident investors. It is strongly recommended that the investors take professional advice in ascertaining their tax liabilities and no reliance should be placed on above. BlackRock or ishares assumes no responsibility for any information contained above or any consequences of actions taken by any investor placing reliance on the above.

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