In a remarkable decision of 9 March 2012, the Court of Appeal of Den Bosch awarded a Finnish investment fund a full refund of Dutch dividend tax withheld from portfolio dividends received from Dutch resident entities.
The Finnish fund was not subject to Finnish corporate income tax and could therefore not credit the Dutch dividend withholding tax. The fund had requested a refund of Dutch dividend withholding tax under the EU free movement of capital, but such refund was refused by the Dutch Revenue.
DECISION OF THE COURT OF APPEAL
In its decision, the Court of Appeal1 firstly established that if the Finnish fund would have been a Dutch tax resident, it would have been subject to Dutch corporate income tax. Dutch resident entities that are not subject to Dutch corporate income tax are entitled to a full refund of dividend tax withheld on their account. The rationale is to avoid economic double taxation. 2The Court of Appeal took the position that in view of this objective, the Finnish fund - as an entity not subject to (Finnish) corporate income tax - was objectively comparable to non-subject Dutch resident entities. According to the Court of Appeal, this objective comparability amounted to a non-justifiable restriction of the EU free movement of capital (currently in Article 63 of the Treaty on the Functioning of the EU). In doing so, the Court of Appeal overturned a 6 June 2011 decision of the Lower Court of Breda.
REACTION DUTCH STATE SECRETARY OF FINANCE
In a letter to Dutch Parliament dated 23 March 2012, the Dutch State Secretary of Finance has announced that he will file an appeal against the Court of Appeal's decision with the Dutch Supreme Court. The Dutch State Secretary argues that the Court of Appeal has erred in comparing the Finnish fund with non-subject Dutch entities.
REFUND POTENTIAL EU AND NON-EU INVESTMENT FUNDS
If the Dutch Supreme Court were to uphold the decision of the Court of Appeal, this might open a vast refund potential for both EU and non-EU investment funds. The case decided by the Court of Appeal also interplays with French cases that are currently pending before the European Court of Justice (the Santander case3). These cases revolve around the question on whether cross border distributions by French investment funds made to EU and non-EU investment funds should benefit from the same exemption from dividend withholding tax granted to domestic distributions to French investment funds. In its future decision, the Dutch Supreme Court will likely closely monitor the outcome of the Santander case and the reasoning applied therein by the European Court of Justice.
In view of the above developments, investment funds should consider to file for refund of Dutch dividend tax withheld on their account. Appeals for refund may arguably extend to the past 3 calendar years (although shorter or longer terms may also apply). The Stibbe tax team has a wide-ranging and in-depth experience on both cross border fund structuring and tax litigation and is well-equipped to advise its clients on steps necessary to preserve their rights in this respect.
1 Court of Appeal of 's Hertogenbosch 9 March 2012, reference number 11/00451.
2 As from 1 January 2007, this Dutch dividend withholding tax refund also extends to non-subject EU resident entities, which, had they been Dutch tax residents, would also not have been subject to Dutch corporate income tax. As per 11 June 2009, the scope of the refund has been further extended to designated Member States of the European Economic Association and, as from 1 January 2012, provided further conditions are met, also to certain non-subject entities resident outside of the EU and EEA. This refund does however not apply if the non-subject non-Dutch resident entity would be comparable to a Dutch fiscal investment institution (fiscale beleggingsinstelling) or a Dutch exempt investment institution (vrijgestelde beleggingsinstelling).
3 The Santander case consists of a number of joint cases numbered C-338/11 through C-347/11.