On May 13, 2025 on the website of the Dutch tax authorities a very interesting, and, at least for us, an also surprising, position paper of the Knowledge Group dividend withholding tax and withholding taxes of the Dutch tax authorities was published (KG:024:2025:4). In this position paper the Knowledge Group has answered a question about the application of the withholding exemption under Article 4, Paragraph 2, of the Dutch Dividend Withholding Tax (Hereinafter: the DDWT) Act in the event that a dividend is distributed and that dividend is not eligible for treaty benefits.
The matter
A private limited liability company (hereinafter: BV) established in the Netherlands distributes a dividend to X Ltd. X Ltd. is established in a state with which the Netherlands has concluded a convention for the avoidance of double taxation. BV transfers the dividend payment to a bank account that X Ltd. holds with a bank outside the state in which X is established. The dividend is therefore not actually transferred to the territory of the state of which X Ltd. is a resident. As a result the dividend is not subject to tax in the state in which X is residing.
The applicable convention for the avoidance of double taxation contains a provision for dividends as referred to in Article 4, Paragraph 2, section a, under 2° of the DDWT Act. However, from the so-called remittance base provision in the applicable convention it follows that, under the convention the dividend is not eligible for treaty benefits. All other requirements for the application of the exemption of Article 4, paragraph 2, of the DDWT Act have been met.
Question
Does the withholding exemption of Article 4, Paragraph 2, of the DDWT Act apply if the beneficiary is established in a state with which the Netherlands has concluded a convention for the avoidance of double taxation that provides for a scheme for dividends, but the dividend in question is not eligible for treaty benefits?
Answer
Yes, the withholding exemption of article 4, Paragraph 2, of the DDWT Act applies if the beneficiary is established in a state with which the Netherlands has concluded a convention for the avoidance of double taxation that provides for a scheme for dividends. It does not matter whether the dividend in question is eligible for treaty benefits.
Legal assessment
The DDWT Act
Article 4, Paragraph 2, of the DDWT Act contains the withholding exemption for Dutch dividend withholding tax in cross-border situations. (Insofar as relevant) The application of this exemption is subject to the condition that:
" 2. Tax shall not be withheld in respect of the proceeds of shares, profit-sharing certificates, capital contributions as referred to in Article 10, Paragraph 1, Subparagraph c, of the Corporate Income Tax Act and loans as referred to in Article 10, Paragraph 1, Subparagraph d, of that Act, if:
a. the beneficiary is a body that, according to the tax legislation of:
(…)
2°. a state, other than a Member State of the European Union or a state that is a party to the Agreement on the European Economic Area, with which the Netherlands has concluded a convention for the avoidance of double taxation (…) that (…) provides for a scheme for dividends is established there"
The text of the law does not require that, based on the convention, the dividend in question is eligible for treaty benefits. A treaty benefit cannot always be claimed in these situations because, for example, the ownership percentage for participation dividends, the requirements in a ‘limitation on benefits’ provision or a remittance base provision are not met.
Legislative history
From the parliamentary proceedings it follows that as of January 1, 2018 the Dutch legislator wanted to extend the withholding exemption to third countries with which the Netherlands has concluded a convention for the avoidance of double taxation that includes a dividend provision. From the legislative history it follow that it is not necessary for the dividend to be eligible for treaty benefits.
The withholding exemption of Article 4, Paragraph 2, of the DDWT Act can therefore be applied to the dividend distribution from BV to X Ltd.
Remark ITP
Since perhaps not all our readers are familiar with remittance base provision below you will find an example of such a remittance base provision. The text below can be found in Article 22, Paragraph 1 of the Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital gains as concluded between the Government of the Kingdom of the Netherlands and the Government of the United Kingdom of Great Britain and Northern Ireland:
“Where under any provision of this Convention any item of income or gains isrelieved from tax in a Contracting State, either in full or in part, and under the laws in force in the other Contracting State a person is subject to tax in respect of that item of income or those gainsby reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof, then the relief to be allowed under this Convention in the first-mentioned Stateshall apply only to so much of the item of income or gains as is taxed in the other State.”
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