On September 17, 2015, the Court of Justice of the European Union (CJEU) ruled on whether Dutch withholding tax (WHT) on non-resident portfolio individual and corporate shareholders is contrary to EU law. The CJEU concluded that the WHT was contrary to EU law if the tax burden on the non-resident is greater than for a resident shareholder. In this respect, the comparison should take the corporate/personal income tax position of residents into account, since they can credit or obtain a refund of the WHT. In comparing this tax burden, only costs that are directly related to the collection of the dividends may be taken into account. A provision in a tax treaty can neutralize the breach of EU law if it results in a credit of the full amount of the WHT.


The cases concerned Dutch WHT levied on dividends distributed to individual portfolio shareholders resident in Belgium and to a corporate portfolio shareholder resident in France and whether this was compatible with the free movement of capital. Although the WHT is, in principle, levied at the same domestic rate on both residents and non-residents, for non-residents the levy is final whereas residents can credit the WHT against their income or corporate income tax liability or otherwise obtain a refund.

The CJEU was asked in the first place whether the corporate/personal income tax position should be taken into account when comparing the two situations. If the answer was affirmative in the cases involving individual shareholders, the CJEU was asked how to compare the WHT on non-residents with the income tax on residents, in particular since the latter was based on deemed rather than actual income from the shares. The CJEU was also asked whether, in comparing the relative tax burdens on resident and non-resident individual shareholders, the benefit of a tax-free amount, which was only granted to residents, should be taken into account. In the case involving a corporate shareholder that carried on an arbitrage business in France, the CJEU was asked what costs could be taken into account in comparing the relative tax burdens. The CJEU was also asked whether a difference in the Dutch tax treatment of the dividends could be neutralized – and thus remove the discrimination – by a tax credit in the state of residence of the dividend recipient under the double taxation relief provisions of the applicable tax treaties.

The CJEU’s decision

The CJEU ruled that in comparing the tax treatment of resident and non-resident shareholders in a Dutch company, the corporate/personal income tax payable by resident shareholders should be taken into account. In other words, the comparison should be between the dividend WHT on non-residents and the ultimate tax burden on residents. The CJEU based this on its earlier case law, in particular the extension of domestic double tax relief to non-residents that are taxed by the source state. The CJEU dismissed the argument that the difference in treatment was simply a question of different taxing mechanisms for taxpayers in different situations.

For individual shareholders, the comparison should be made in respect of all shares in Dutch companies and for the entire calendar year, as this was the basis on which residents were taxed under domestic law. The comparison should also take into account the tax-free amount available to Dutch-resident individuals. According to the CJEU, this benefit was available to all shareholders to reduce the income tax base, irrespective of their personal circumstances.

In the case involving the French corporate shareholder, the CJEU ruled that only the costs that were directly related to the collection of the dividends could be taken into account in comparing the tax burdens of residents and non-residents. In particular, hedging costs incurred in relation to the shareholder’s arbitrage activities could not be taken into account. The same applied to financing costs, as these related to the holding of the shares. Pre-acquisition dividends were also excluded as these related to the adjustment of the acquisition price and not the collection of the dividends.

On the question of whether a difference in treatment, if established, could be neutralized by an applicable tax treaty, the CJEU noted that, in the case of the Belgian shareholder, although double taxation relief was to an extent granted, this was a unilateral benefit and did not arise from the Belgium-Netherlands treaty. Accordingly, based on its earlier case law, the CJEU ruled that this could not neutralize any difference in treatment. As regards the French corporate shareholder, the CJEU ruled that, because the France-Netherlands treaty only provided for an ordinary credit, it was possible that it did not fully neutralize the Dutch WHT. Whether it did, was a question for the Dutch referring court to decide. The CJEU considered as hypothetical a further question as to whether the ability to carry forward a tax credit was capable of neutralizing a difference in treatment, and so did not address this point.

Our comment

Non-resident individuals will welcome the decision as it allows them to take account of the tax-free amount when comparing their tax treatment with that of a resident shareholder. Corporate shareholders will be disappointed that the only costs that can be taken into account are those relating to the collection of dividends. We expect this aspect of the case to be heavily criticized. On the question of neutralization of a different tax treatment, the CJEU now seems to have made clear that this is possible even if a tax treaty only provides for an ordinary credit, provided this leads to neutralization in the case in question.

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