Possible opportunities for refund of Dutch dividend withholding tax
On 17 September 2015, the Court of Justice of the European Union ("CJEU") ruled in three distinct (yet comparable) cases that the levy of Dutch dividend withholding tax in relation to portfolio shareholdings in Dutch companies is in conflict with the EU free movement of capital in certain circumstances.
As a result, individuals and legal entities that are not resident in the Netherlands but own (or have owned) portfolio shareholdings in Dutch companies may be eligible for a refund of Dutch dividend withholding tax if they cannot fully offset the Dutch withholding tax against the income tax due in their state of residence.
Background to the cases before the CJEU
In the year 2008, a French company received dividends from its Dutch portfolio shareholding. These dividends were subject to 15 per cent Dutch withholding tax. The Dutch withholding tax could not be credited against the French corporate income tax due because the French company was in a loss-making position and therefore the French corporate income tax was insufficient to fully offset the Dutch tax. Before the courts the French company argued that, had it been a Dutch tax resident, the (final) Dutch tax levy on the dividends would have been less than 15 per cent.
The two other cases relate to Belgian individuals who received dividends from their Dutch portfolio shareholding in 2007. These dividends were subject to 15 per cent Dutch withholding tax. The Belgian individuals argued before the courts that, had they been Dutch tax residents, the (final) Dutch tax levy on the dividends would have been less than 15 per cent.
In the three distinct yet comparable cases, the CJEU was asked to clarify how the tax burden between a resident and non-resident shareholder with a portfolio shareholding in a Dutch company should be compared when assessing whether the Dutch dividend withholding tax is a restriction of the EU free movement of capital.
The CJEU ruled that the comparison of the tax burden between a resident and non-resident should be performed on a net basis.
For corporate shareholders, the CJEU furthermore clarified that, when comparing residents and non-residents, only the costs incurred for collecting ("het innen van") the dividend income as such should be deducted to determine the netbasis. The corporate income tax that would be due on that basis (at a rate of 20 per cent up to 25 per cent in 2015) should then be compared to the Dutch dividend withholding tax due.
In the case of individual shareholders, however, the Netherlands taxes income from portfolio assets on the basis of a notional yield of 4 per cent of the fair market value of all portfolio assets, per year. Therefore the CJEU stated that to compare the tax burden for individuals, the net basis should be calculated at 4 per cent of the fair market value of all portfolio shareholdings in Dutch companies owned throughout the year less the tax free allowance (EUR21,330 in 2015, doubled in the case of individuals with a partner). The personal income tax (rate 30 per cent in 2015) that would be due on that basis should then be compared to the Dutch dividend withholding tax due. The difference would be regarded as excessive.
The CJEU, however, confirmed that the potential discriminating taxation in the source state (i.e., the Netherlands) can be taken away by a tax treaty, but only when the difference in tax treatment of the dividend income is fully neutralized. As a result, the aforementioned comparison becomes relevant if a full credit is not available in the state of residence of the foreign shareholder.
As stated above, the decision of the CJEU could benefit foreign shareholders who cannot fully offset the Dutch dividend withholding tax against the income tax due in their state of residence. However, whether this is actually possible should be determined on a case by case basis. Therefore, we advise foreign shareholders who cannot fully offset the Dutch withholding tax to contact us to determine whether they should be eligible for a refund of Dutch tax.