On December 20, 2013, the Supreme Court requested preliminary rulings from the Court of Justice of the European Union (CJEU) on three cases involving the levying of Dutch dividend withholding tax. Two cases concern dividend withholding tax levied on private Belgian shareholders in Dutch companies. The third case involves dividend withholding tax levied on a French bank. In one of these cases, the proceedings were instigated by KPMG Meijburg & Co on behalf of one of its clients. This memorandum discusses these cases.

Belgian private investors

For a foreign private investor, 15% dividend withholding tax is payable in the Netherlands on the dividend actually distributed by Dutch resident companies, while a Dutch investor’s shareholding is taxed in box 3 at 1.2% (the deemed fixed return of 4% is taxed at 30%). Dutch investors are effectively not subject to dividend withholding tax, because they can credit the withheld dividend withholding tax or request a tax refund.

The Supreme Court has requested the CJEU to rule on whether the dividend withholding tax levied on foreign investors must be comparable to the income tax levied on domestic investors. If the answer to this question is affirmative, foreign investors will need to calculate a fictitious Dutch tax on their shareholdings. If this fictitious Dutch tax is less than the Dutch dividend withholding tax, the difference may have to be repaid to the investor.

The Supreme Court has drawn up a number of subsequent questions with regard to how this fictitious Dutch tax should be calculated. This is particularly complicated, as the dividend withholding tax levied on the actual dividends received differs significantly from the tax levied in box 3 on the deemed income from shareholdings. For example, box 3 entitles Dutch investors to deduct the value of their liabilities and to apply a tax-free amount to their total assets. There is no comparable tax relief with respect to dividend withholding tax for foreign investors. Also, the deemed income in box 3 not only relates to dividend income, but also to capital gains. The tax base in box 3 is therefore broader than the dividend withholding tax. And finally, a preliminary ruling was requested on the possibility of Dutch tax being set off abroad.

The French bank

The issues involved in the French bank case are similar. A French bank is subject to Dutch dividend withholding tax on the dividends it receives. A comparable Dutch bank would be subject to corporate income tax on the dividends it receives. Even though the Dutch tax to which the French bank is subject is lower than that of a comparable Dutch bank, the Dutch bank can deduct costs.

The Supreme Court has – in addition to the comparability of both situations − requested a preliminary ruling on the costs that French banks may take into consideration. Does this include all the costs that are, from an economic perspective, associated with the shares? For example, how should the financing costs related to the purchase of shares be dealt with? Also in this case, questions were raised on the crediting of Dutch dividend withholding tax against French corporate income tax.

Comments by KPMG Meijburg & Co

The levying of dividend withholding tax on foreign shareholders is an issue throughout Europe. It can be concluded from CJEU case law that a foreign shareholder cannot be taxed more heavily than a comparable domestic shareholder. By requesting these preliminary rulings, the Supreme Court is trying to gain more clarity on the comparability factor as it applies in EU law and how this is relevant to Dutch dividend withholding tax. If the questions presented by the Supreme Court are answered in the affirmative, then the levying of Dutch dividend withholding tax will become more complicated than it is at present. It then needs to be decided whether the revenue received from dividends is worth the costs involved in collecting it, or whether it would actually be better to abolish dividend withholding tax.

As appropriate, we recommend either filing an objection or an appeal, or expound on the objection or appeal grounds by referring to the questions raised by the Supreme Court.

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