On 10 July 2015, the Dutch Supreme Court ruled that a Luxembourg SICAV is not comparable to a Dutch Fiscal Investment Institution (“FBI”). Therefore, the SICAV is not entitled to a refund of Dutch dividend withholding tax (“DWT”).
Facts and circumstances
In 2007 and 2008 the SICAV received Dutch portfolio dividends on which Dutch DWT was withheld. The SICAV argued that this levy infringes the free movement of capital (Article 63 TFEU) as a Dutch FBI was (effectively) not subject to Dutch DWT in 2007 and 2008.
Dutch Supreme Court
The Dutch Supreme Court stipulates that the goal of the Dutch FBI-regime is to achieve tax neutrality between direct and indirect portfolio investment. In case a non-Dutch resident would receive Dutch portfolio dividends directly or via a Dutch FBI, it would be subject to Dutch DWT. Dividends distributed by a non-Dutch resident investment fund, however, are in principle not subject to Dutch DWT. In case the Dutch DWT incurred by such an investment fund would be refunded, the ultimate effective tax burden of a non-Dutch resident would be less than in the situation in which the non-Dutch resident would have invested directly, according to the Dutch Supreme Court.
In that light, the Dutch Supreme Court considers that the levy of DWT on the FBI’s distributed dividends is an essential element of the FBI regime. Since dividends distributed by the SICAV are not subject to Dutch DWT and the Netherlands has no taxing rights on dividends distributed by the SICAV to non-Dutch resident participants, the SICAV is not comparable to a Dutch FBI.
In our view, it is remarkable that the Dutch Supreme Court does not consider the position of Dutch resident participants. They would effectively not have been subject to Dutch DWT in case they had invested directly or via a Dutch FBI. Their ultimate effective tax burden when investing through the SICAV is thus higher than in the situation in which they would have invested directly. Furthermore, as the case-law in this area is not entirely clear and unisonous, we are surprised that the Dutch Supreme Court did not refer preliminary questions to the European Court of Justice (“CJEU”).
We expect that following this judgement, the Dutch tax authorities (and Dutch courts) will (continue to) reject requests for a refund of Dutch dividend withholding tax incurred by non-Dutch resident investment funds.
We are currently assessing other possible actions which may be taken in order to ultimately obtain a refund of Dutch DWT. It could for instance be considered to file a complaint against the Netherlands with the European Commission (“EC”). In case the CJEU would subsequently start an infringement proceeding against the Netherlands and the CJEU would decide in favour of the EC, claimants should under conditions still be eligible for a refund of Dutch DWT. One of those conditions is that the decision of the Dutch tax authorities to reject a refund request of a claimant has become final as a result of a judgment of a national court ruling at final instance (i.e. the claimant should have litigated up to the Dutch Supreme Court).
News initially issued by the PwC EU Direct Tax Group (EUDTG). For other EU-specific news, you can register “here“.