On February 6, 2015 the Supreme Court rendered judgments in two cases involving profit distributions made by Dutch companies to their parent companies resident on Curaçao. The Supreme Court ruled that the 8.3% dividend withholding tax pursuant to the Tax Regulations for the Kingdom of the Netherlands (Belastingregeling voor het Koninkrijk, “BRK”) is not contrary to EU law and therefore may be maintained.
We informed you about these cases in our previous report on the Opinion issued by the Advocate General at the Court of Justice of the European Union (CJEU) and the CJEU’s judgment on this issue. At issue in both cases was a dividend distribution made in 2005, respectively 2006, by a Dutch company to a 100% parent company – a public limited company incorporated under Netherlands Antilles law and established on Curaçao – from which 8.3% dividend withholding tax was withheld and remitted pursuant to the BRK.
The position taken by the parent companies was that the levying of this dividend withholding tax was contrary to the free movement of capital that, according to the EC Treaty (“ECT”), also applies to the movement of capital from and to third countries, or was contrary to the non-discrimination clause in the Overseas Association Decision (“OAD”), which governs the association between the EU Member States and overseas countries and territories (“OCT”). On the basis of this, the withholding exemption should be granted to both parent companies. To obtain assurance about the accuracy of this position, the Supreme Court submitted a number of questions to the CJEU.
In the judgment rendered on June 5, 2014 the CJEU concluded that the limitations to dividend distributions between the EU and the OCT, to which Curaçao belongs, are in principle prohibited. Unlike the Advocate General at the CJEU, the CJEU did not base its assessment on the free movement of capital in the ECT, but on the OAD. The OAD includes an exclusion clause that relates to the prevention of tax evasion.
By virtue of this clause, the CJEU ruled that 8.3% dividend withholding tax may be levied, provided this tax is indeed intended to prevent tax evasion and that this goal is effectively and proportionately pursued with the 8.3% tax rate. It was subsequently up to the Supreme Court to assess whether these conditions were met.
The Supreme Court
With reference to the legislative history to the Act implementing the 8.3% tax in the BRK, the Supreme Court concluded that this tax was indeed introduced to prevent tax evasion and that its introduction effectively and proportionately pursues this goal. The Supreme Court accordingly ruled that the 8.3% tax is not contrary to EU law and therefore may be maintained.
Commentary by Meijburg & Co
The judgments by the Supreme Court appear to bring to an end an issue that has been in dispute since the amendment to the BRK that introduced the 8.3% rate as the maximum withholding tax rate. In previous judgments the Supreme Court had already ruled that the 8.3% rate was not contrary to EU law, without requesting a preliminary ruling from the CJEU. However, this case law was thrown into doubt by later case law rendered by the CJEU. The present Supreme Court judgments are quite brief, but apparently the Supreme Court is of the opinion that 8.3% dividend withholding tax can nevertheless also be levied in situations that do not involve abuse, although it does not further substantiate this.
In this respect the Tax Regulation for the Avoidance of Double Taxation between the Netherlands and Curaçao (Belastingregeling ter voorkoming van dubbele belasting tussen Nederland en Curaçao; BRNC) that was presented to the Dutch parliament in June 2014 is a marked improvement, as it proposes that no dividend withholding tax be levied on intercompany shareholdings of at least 10% if, for example, there is sufficient substance on Curaçao. The BRNC is expected to take effect as of January 1, 2016.