Possible opportunities for refund of Dutch dividend tax
06 March 2014
Posted by: Author: Heico Reinoud and Harald van Dobbenburgh
Author: Heico Reinoud and Harald van Dobbenburgh (Baker & McKenzie)
Companies and individuals that own or owned portfolio shareholdings in Dutch companies, may be able to obtain a (partial) refund of Dutch dividend withholding tax in case the European Court of Justice (EU Court) decides that the tax is in certain cases in conflict with the EU free movement of capital.
Companies and individuals should review their tax position and determine whether more Dutch tax has been levied than the amount that would have been levied had they been a Dutch tax resident. If so, then a request should be filed with the Dutch tax authorities to refund the excess.
We would be pleased to assist you in determining whether you may be eligible for a potential refund of Dutch tax and discuss subsequent steps.
Summary of the cases
The Dutch Supreme Court has requested the EU Court in three cases to assess whether Dutch dividend withholding tax on portfolio shareholdings is in conflict with the EU free movement of capital.
In the years 2000 - 2008, a French company received dividends from a Dutch portfolio shareholding. These dividends were subject to 25% and as of 2007 15% Dutch withholding tax. The Dutch tax was credited against the French corporate income tax due, except in 2008 when the French company was in a loss-making position and did not have to pay French tax. For all years, the French company takes the position that, had it been a Dutch tax resident, the (final)Dutch tax levy on the dividends would have been lower than 25% and 15% respectively.
The two other cases relate to Belgian individuals that received dividends from a Dutch portfolio shareholding in 2007. These dividends were subject to 15% Dutch withholding tax. The Belgianindividuals take the position that, had they been a Dutch tax resident, the (final) Dutch tax levy on the dividends would have been lower than 15%.
The Supreme Court has requested the EU Court to clarify how the tax burden between a resident and nonresident should be compared when assessing whether a restriction of the free movement of capital exists. Should the comparison be based on (A) tax computed on the gross basis, in which no distinction is made between a resident and nonresident, or (B) tax computed on a net basis, in which case a resident would usually be better off than a nonresident since a resident can credit the Dutch withholding tax against its Dutch income tax (which is computed on a net basis) and any excess can be refunded?
If the comparison should be based on method B, the Supreme Court subsequently requests (i) in the French company case whether all costs that are economically linked to the Dutch portfolio shareholding should be taken into account and (ii) in the Belgian individual cases how the tax burden between a resident and nonresident should be determined. The reason for the 2nd question is that for Dutch resident individuals, the income from portfolio shareholdings is determined on the basis of a 4% notional return on savings and investments, rather than on the basis of the actual income received.
In case the EU Court rules that comparison should take place on basis of method B, the Supreme Court has the following question. If on basis of method B the nonresident is worse off than a resident, but was nevertheless able to credit the Dutch tax against its income tax (as a result of which the nonresident did not suffer additional tax), would the levy of Dutch tax on a gross basis then still be discriminatory?
Example of a taxpayer that should benefit from a favorable outcome of the relevant cases
A nonresident company receives dividend income of 100 from a Dutch portfolio shareholding on which 15 (15%) Dutch tax has been withheld.
Click here to view to table.
In the domestic situation, the amount of income tax is 5, and therefore a refund will be granted of 10. However, in the foreign situation the nonresident has an equal amount of Dutch income (100) and an equal amount of costs linked to that dividend (80), but still pays 15% Dutch tax, which means an effective tax burden of 75% on the net income. This is a clear disadvantage for non residents compared to residents who invest in Dutch portfolio shares.
Depending on the decision of the EU Court in the pending cases, nonresidents may be allowed to determine their Dutch tax on dividends on a net basis, likewise residents. If this results in a lower Dutch tax burden on the Dutch dividend than the Dutch dividend tax withheld on the gross amount, the nonresident should consider to file a request for a refund with the Dutch tax authorities.
This article first lexology.com.