by Wiebe Dijkstra and Klaas Versteeg
The Dutch State Secretary of Finance has issued, in his executive capacity, a decree outlining his views on the refund of Dutch dividend withholding tax due foreign corporate and individual portfolio shareholders of Dutch companies.
The decree, issued on 25 April, is in response to the Miljoen, X, and Société Général decisions of the Dutch Supreme Court, discussed earlier on MNE Tax . The Dutch Supreme Court ruled in these three cases that the levying of Dutch dividend withholding tax on foreign shareholders is incompatible with European law if the levy exceeds the effective Dutch taxation of comparable Dutch resident shareholders. However, the rulings were silent on a number of important questions regarding how to make this comparison between domestic shareholders and foreign shareholders.
Unfortunately, the decree does not provide for a practical and general solution to these unresolved questions. Rather, it sets out the views of the Dutch State Secretary of Finance on a number of specific topics, many of which are debatable from an EU law perspective. Hence, this decree may very well not put an end to pending cases because taxpayers may continue to pursue diverging positions on these topics.
The highlights of the decree are as follows:
- Each refund request requires a comparative analysis on a case-by-case basis, i.e., the decree does not offer refunds to groups of foreign shareholders on a more or less fixed basis. The reference period is a calendar year for individual shareholders and a tax book year for corporate shareholders.
- Refunds may be claimed by residents of the EU, the EEA, and third countries that have entered into a tax exchange agreement with the Netherlands.
- No refund will be provided if the excessive Dutch dividend withholding tax is neutralised in full in the country of residence based on a tax treaty. In the view of the State Secretary of Finance, it does not matter that tax treaties typically only provide for an ordinary credit rather than a full credit as long as the ordinary credit results in neutralisation in full in the case at hand.
- For foreign individual shareholders, no debts will be taken into account when calculating the Dutch tax that these shareholders would have been subject to had they been taxed as Dutch residents. This is disadvantageous because these debts would otherwise have reduced the Dutch tax liability in the comparative calculation. The tax-free threshold of approximately EUR 25.000 (double for partners) that applies to Dutch individuals will be taken into account, which is advantageous to foreign shareholders. This conclusion follows explicit language in the court rulings.
- For foreign individual shareholders, only portfolio shares in Dutch companies will be taken into account in the comparative calculation. This is advantageous for shareholders that also hold Dutch real estate. If Dutch real estate had to be taken into account, this would have increased the Dutch taxation that would be due if the shareholder had been resident in the Netherlands, reducing the refund.
- For foreign shareholders, no costs and expenses – such as financing costs and negative currency exchange costs – are taken into account in the comparative calculation except for costs directly related to the collection of dividends. This conclusion is required by the court rulings.
- According to the decree, foreign individual portfolio shareholders must file a refund request within five years after the calendar year in which they have received the dividends. Foreign corporate shareholders must file the request within three years after the tax book year in which they received the dividend payment.
Unrelated to Dutch dividend withholding tax, the decree also provides that foreign individuals that are subject to Dutch income tax on their Dutch portfolio investments – mainly Dutch real estate – are eligible for the tax-free threshold of approximately EUR 25.000 (double for partners) even though Dutch statutory tax law does not provide for this. The State Secretary of Finance derives from the ECJ rulings – in our view correctly – that Dutch statutory tax law violates the EU treaty freedoms in this respect
Wiebe Dijkstra
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Klaas Versteeg
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