Most Read Contributor in Netherlands, February 2017
Following the recent ECJ decisions in Miljoen,
Société Général and X,
the Dutch Supreme Court recently provided further guidance on how
to calculate the Dutch dividend withholding tax refund for foreign
portfolio shareholders. The ECJ had ruled that levying Dutch
dividend withholding tax on foreign shareholders is incompatible
with European law if the levy exceeds the effective tax rate of
comparable Dutch resident shareholders. For foreign individual
shareholders, the Supreme Court confirmed that the value of all
portfolio shareholdings in Dutch companies forms the basis of the
comparison. For foreign corporate shareholders, the Supreme Court
followed the ECJ's instruction that only costs and expenses
directly related to the collection of dividends should be taken
into account. Foreign corporate and individual portfolio
shareholders should investigate whether they can claim a refund of
Dutch dividend withholding tax based on these rulings.
Dutch companies generally must withhold 15% dividend withholding
tax from distributions to both domestic and foreign shareholders.
But where Dutch individuals and corporate shareholders benefit from
a full credit or exemption, the dividend withholding tax is a final
levy for non-residents.
Dutch individuals effectively pay income tax at a rate of 1.2%
of the fair market value of their portfolio investments minus
related debt, insofar as this net amount exceeds a tax-free
threshold of almost EUR 25,000 (twice this amount for partners).
Dutch corporate portfolio shareholders are subject to Dutch
corporate income tax on their net profits calculated for tax
purposes at rates up to 25%. This could lead to a different
effective tax rate for foreign and domestic individual portfolio
In its rulings, the ECJ gave somewhat ambiguous instructions to
the Dutch Supreme Court in how to compare tax paid by foreign and
domestic shareholders. The recent Dutch Supreme Court decisions
provide some further guidance based on these instructions.
For foreign individual portfolio shareholders, the Supreme Court
confirmed that the value of all portfolio shareholdings in Dutch
companies forms the basis of the comparison to be reduced by the
full amount of the tax-free threshold. Both elements are beneficial
because they restrict the taxable base for calculating the tax due
if the foreign shareholder were taxed under the rules applicable to
For instance, one could also argue a pro rata allocation of the
tax-free threshold on the basis of the overall net value of
portfolio investment held by the individual. This would result in a
higher taxable base. If a French individual shareholder holds
portfolio investments with an aggregate value of EUR 100,000, of
which EUR 50,000 is attributable to Dutch shares, the taxable base
is just over EUR 25,000 and the tax due is EUR 300 under the rules
for domestic taxpayers. Hence, if the shareholder receives a gross
dividend of EUR 5,000 reduced by EUR 750 dividend withholding
tax, the shareholder is entitled to a refund of EUR 450.
Unfortunately, the Supreme Court rulings are silent on other
important aspects of comparing individual portfolio shareholders,
including (i) how to deal with the allocation of debt incurred for
portfolio investments to the Dutch part of that portfolio, and (ii)
whether the rules for Dutch real estate investments held by foreign
individuals are applicable in the same way as they are to domestic
For foreign corporate shareholders, the Supreme Court followed
the ECJ's instruction that only costs and expenses directly
related to collecting dividends should be taken into account for
calculating the taxable net profits that serve as a basis for
determining the corporate income tax as due under the rules
applicable to Dutch corporate shareholders. This rather restricted
approach towards taking into account related costs is to the
disadvantage of foreign shareholders.
Finally, the Supreme Court did not clarify the ECJ's
comments of how tax credits provided by the shareholder's
country of residence, based on double taxation treaties, could
justify the incompatibility and remove the need to refund Dutch
dividend withholding tax.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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