EC Infringement Procedure

Olivier Hermand 25 April 2014


EC Infringement Procedure: Discriminatory Tax Charge on Dutch-Source Dividends paid to EU/EEA Insurance Companies

On 16 April the European Commission requested the Netherlands to end the discriminatory tax charge on dividends received on shares held by insurance companies based in another EU Member State or EEA member country (see press release).

This procedure is likely to have wide application and to apply to claims outside the Netherlands.

Gross v. Net Tax Charge

Net Tax Charge for Local Insurers:

According to the Commission, Dutch insurance companies are effectively not taxed on dividends received on shares held in the framework of unit-linked insurance policies (commonly called ‘Branche/Tak 23’ in Belgium). They can deduct their technical reserves (i.e. increase in the obligation to pay the dividends on to their policyholders) from the dividends received. This reduces the corporate tax base concerning these dividends to zero, while any Dutch withholding tax is credited.

Gross Tax Charge for Foreign Insurers:

However, the Netherlands charges taxes on insurance companies based in the EU or the EEA receiving Dutch dividends on shares held in the framework of unit-linked insurance on the gross dividends, without possibility of a credit.

Commission v. Finland Case Law:

In line with case C-342/10 Commission v. Finland, the Commission considers the higher tax charge on insurance companies established elsewhere in the EU/EEA to be incompatible with the free movement of capital.

What does it mean in practice?

These are the important points to consider now:

  • Although the request is for the Dutch government to end discrimination in future, it tends to strengthen the position for existing claims.
  • If you haven’t yet submitted claims in the Netherlands, then you should now consider doing so.
  • The argument that the Commission has made against the Netherlands should apply in many other Member States, so this strengthens claims generally and you should consider making claims in territories other than the Netherlands where you have not done so. It remains to be seen whether the Commission will make specific requests to other Member States but there are clear parallels, so it would not be a surprise if they do.
  • Claims may also be possible by ‘Third Countries’. So these developments could also be relevant for non-EU insurers.