(August 11, 2015)

On July 10,2015 in ECLI:NL:HR:2015:1777 the Dutch Supreme Court ruled that a Luxembourg SICAV is not to be treated equally for Dutch dividend withholding taxes as a Dutch ‘fiscale beleggingsinstelling’ (FBI) (Dutch fiscal investment fund).

 

Background

 

Dutch regulations contain a special regime for so-called FBIs. The purpose of this special regime is to create neutrality for tax purposes between a situation in which an individual invests directly in assets like a.o. shares and a situation in which such an individual invests his capital via a qualifying FBI. Article 28, Paragraph 2 of the Dutch corporate income tax Act (DCITA) contains the conditions that an entity has to meet to qualify as a FBI for Dutch corporate income tax purposes.

 

Direct investments 

If an individual owns shares in an entity that is subject to Dutch taxes and that entity makes a dividend distribution, the entity will have to withhold dividend withholding taxes over the dividend distribution made.

 

If the individual receiving such dividends is a non-resident for Dutch individual income tax purposes and the shareholding does not qualify as a so-called ‘aanmerkelijk belang’, no Dutch individual income tax will be due over this dividend income. In such a situation the dividend withholding tax withheld by the distributing entity is therefore the ‘final’ Dutch tax due over the dividend income.

 

If the dividend distribution is made to an individual who is a resident of the Netherlands (and therefore subjected to the Dutch individual income tax), Dutch individual income tax is due over the dividend income/the value of the underlying shares (Box 3 income). The dividend withholding tax the distributing entity withheld over the dividends received by the individual can be credited against the Dutch individual income taxes due by that individual. In such a situation the dividend withholding tax withheld by the distributing entity is therefore a ‘preliminary’ tax.

 

Using a FBI

 

By introducing the FBI-regime the Dutch legislator has tried to create a system in which the interposing of a qualifying investment fund does not influence the ‘total’ taxes that are raised over the investment income. For this purpose, the Dutch legislator has created a system in which a FBI is subjected to Dutch corporate income tax. The applying corporate income tax rate is however set at 0%. Furthermore until December 31, 2007 a qualifying FBI could request a restitution of the Dutch dividend withholding tax that was withheld over dividends the FBI had received. As of January 1, 2008 the system is changed. As of that date a qualifying FBI can deduct the dividend withholding taxes withheld over the dividends it itself has received from the dividend withholding tax it has to withhold over the dividend distributions it makes to its shareholders (NB a maximum applies with respect to foreign withholding taxes that were withheld over dividend distributions a FBI received).

 

The case

 

In the underlying case X (a Luxembourg SICAV) took the position that although not being subjected to Dutch taxes, it should be entitled to receive the same treatment for Dutch dividend withholding tax purposes as ‘Dutch’ FBIs do.

 

The facts

 

X is a Luxembourg investment fund.

 

X is a so-called SICAV. A SICAV is an open-ended collective investment scheme. SICAV is an acronym for Société d'Investissement à Capital Variable (freely translated as 'investment company with variable capital').

 

X is an umbrella fund with several sub-funds. The shares of X are divided into different sorts of shares. Every sort of shares is linked to a sub-fund. Per sub-fund the share capital can consist out of ‘accumulation shares’ and ‘distribution shares’. With respect to all sub-funds ‘accumulation shares’ have been issued. ‘Distribution shares’ have been issued with respect to most of the sub-funds. In principle no dividends are distributed on the ‘accumulation shares’. On ‘distribution shares’ dividend distributions are being made. These dividend distributions take place monthly, quarterly or annually, depending on the sort of ‘distribution shares’ that were issued. In 2007, respectively 2008, the share capital of the taxpayer consisted for 22.77% and 23.69% out of ‘distribution shares’.

 

X’s activities consist out of the investing in shares of a.o. companies that are residents of the Netherlands.

 

X is exempted from a tax on income in Luxembourg and X has no distribution obligation that is equal to the one as meant in Article 28, Paragraph 2, sub b DCITA.

 

In 2007 and 2008 X received portfolio dividends from the Netherlands. 15% Dutch dividend withholding tax was withheld over these dividend distributions received by X. Since X is exempted from a tax on income in Luxembourg, X could not settle the Dutch dividend withholding tax withheld with Luxembourg taxes.

 

X has requested a restitution of Euro 88,846 of Dutch dividend withholding taxes withheld over the dividends it received during the second half of 2007 and a restitution of Euro 670,857 of Dutch dividend withholding taxes withheld over the dividends it received during 2008. The tax inspector has denied these requests. The court of justice from ‘s-Hertogenbosch has ruled that X is not entitled to a restitution of the Dutch dividend withholding taxes withheld over the dividend distributions X received in 2007 and 2008. X went in appeal against this decision.

 

The Dutch Supreme Court’s ruling

 

The Dutch Supreme Court ruled that for answering the question whether article 56 TEU (nowadays Article 63 TFEU) compels the Dutch tax authorities to grant X a restitution of Dutch dividend withholding taxes that were withheld over the dividends X received, it should be reviewed whether X can objectively be equated with a Dutch resident FBI. The latter (a Dutch resident FBI) can request a restitution of dividend withholding taxes that were withheld over the dividends it received (Article 10, paragraph 2 of the Dutch dividend withholding tax Act (hereafter: DDWTA); text for the year 2007) or it can deduct the amount of dividend withholding tax withheld over the dividends which it received from the dividend withholding tax that it has to withhold over the dividend distributions it makes (Article 11a DDWTA; text for the year 2008).

 

According to the Dutch Supreme Court the goal of the FBI-regime is to arrange that the total effective tax rate on the investment income of such an investment fund is as equal as possible to the total effective tax rate that would apply to direct investments made by private individuals. In case of a direct investment in Dutch funds, a foreign private investor receiving dividends in principle is not entitled to a restitution or a credit of the dividend withholding tax withheld. For such individuals the Dutch dividend withholding tax is a final Dutch tax. In case a foreign private individual invests in Dutch shares via a FBI, the Dutch dividend withholding tax that such FBI withholds over the dividend distributions it makes, is the final Dutch tax for such foreign private individual. According to the Dutch Supreme Court the dividend withholding tax to be withheld over dividend distributions made by the FBI accomplishes that also for foreign private individual shareholders the effective tax rate is as much as possible equal to the effective tax rate that would have applied if such foreign private individual would have directly invested in Dutch shares. An investment fund like X, that is a resident of a foreign country, in principle does not have to withhold Dutch dividend withholding taxes over the dividend distributions it makes. According to the Dutch Supreme Court in case such a (foreign) fund would receive a restitution of the Dutch dividend withholding tax that was withheld over the dividends the fund received, this would therefore result in a situation in which the total effective tax rate for such a private foreign shareholder would be lower than in a situation in which such a foreign private investor would have directly invested in the Dutch shares. Therefore, taking into account the aim of the FBI-regime, the withholding of Dutch dividend withholding tax over the dividends the FBI re-distributes is an essential component of the FBI-regime.

 

There is no dispute that the profits that X puts to the disposal of its participants are not subjected to Dutch dividend withholding tax. Nor is it disputed that the Netherlands has no right to tax the income of the non-Dutch resident shareholders of X. According to the Dutch Supreme Court X can therefore not be objectively equated with a FBI that is residing in the Netherlands and which dividend distributions are subjected to Dutch dividend withholding taxes.

 

The Dutch Supreme Court ruled that the SICAV is not entitled to a restitution of the Dutch dividend withholding taxes withheld over the dividends it received.

 

Click here to be forwarded to the text the ruling, which is available in the Dutch language.

 

 

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