Netherlands: Dividend withholding tax, refunds claimed by EU investment funds

Netherlands: Dividend withholding tax, investment funds

Dutch Supreme Court in July 2015 denied a request for a refund of Dutch dividend withholding tax filed by a Luxembourg investment fund. However, the Supreme Court today referred questions to the Court of Justice of the European Union (CJEU) for a preliminary ruling concerning the refund claims of a foreign—EU resident—investment fund that received Dutch portfolio dividends on which Dutch dividend withholding tax was levied.

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The fund claimed a full refund of the Dutch dividend withholding tax. The fund considered itself to be comparable with a Dutch resident fiscal investment institution (FBI). At the time in question, FBIs were effectively exempt from Dutch corporate income tax and entitled to a credit/refund of the dividend withholding tax withheld on their investments. Dutch withholding tax was, however, due on dividends paid by the FBI to its participants. This meant that the fund was able to effectively pass on the underlying withholding tax to its participants, and consequently the participant would be taxed in the same way as if the participant had invested directly in the underlying shares of the fund (“tax neutrality”).

In the pending case, the foreign fund claimed that the difference in tax treatment results in a restriction of the free movement of capital (Article 63 TFEU) and that it was therefore entitled to a refund. The CJEU has been asked to address whether refusing a refund of withholding tax on the basis that a foreign investment fund does not have a Dutch withholding tax obligation, is in accordance with the free movement of capital. By way of subsidiary questions, the CJEU also has been asked to indicate how strictly the applicable shareholder and distribution requirements for an FBI are to be interpreted when making the comparison with a non-resident fund. 

 

Read a March 2017 report prepared by the KPMG member firm in the Netherlands: Supreme Court refers preliminary questions to the Court of Justice of the European Union about dividend withholding tax refunds for foreign investment funds

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