On June 3, 2025 we reported on 3 judgments of the Court of Appeal of The Hague on the relevance of the outcome of a Mutual Agreement Procedure for earlier years (See our article of June 3, 2025). These judgments regard the question whether for the financial years 2018 through 2020 under the Dutch-Brazilian DTA the tax sparing credit of Article 23, Paragraph 4, section a (a tax sparing credit of 25% applying to dividends as meant in Paragraph 2 of Article 10 of the Convention) or the tax sparing credit of Article 23, Paragraph 4, section b (a tax sparing credit of 20% applying to interest as meant in paragraph 2 of Article 11) applies to income that qualifies as juros sobre o capital próprio (Hereinafter: JCP) under Brazilian law? A JCP in the English Language is referred to as “Interest on Net Equity” (Hereinafter: IoNE) or as an “Allowance for corporate equity”.
In its judgments the Court of Appeal of The Hague ruled that in the opinion of the Court, no account needs to be taken of the subsequent agreement that is laid down in the MAP Decree, in which the competent authorities classify the IoNE as interest. The Court disregards this agreement, already because it had not yet been reached during the years at issue and could only be relevant for the interpretation of the DTA from the moment it was properly disclosed to the public.
On October 2, 2025 on the website of the Dutch courts a judgment of the Court of Appeal of Amsterdam from July 30, 2025 in a similar case was published. In its judgment of July 30, 2025 the Court of Appeal of Amsterdam comes to the same conclusion as the Court of Appeal of The Hague did. The case that was put in front of the Court of Amsterdam regards the Dutch corporate tax assessment that was issued to a Dutch tax payer for the financial year 2018/2019.
in 2021 during a Mutual Agreement Procedure the Competent Authorities of the Netherlands and Brazil came to an agreement on how JCP distributions where to be treated for DTA purposes. However, the outcome was only made public by the publication of the MAP Deceree of March 16, 2022 (a Decree issued by the Dutch Secretary of Finance) in the Dutch State Gazette of April 4, 2022.
With respect to the question whether the agreement that was later reached between the Netherlands and Brazil in a Mutual Agreement Procedure should be taken into account in earlier financial years the Court of Appeal of Amsterdam considered the following:
“The inspector argues that, pursuant to Article 25, Paragraph 3 of the Dutch-Brazilian DTA and Article 31, Paragraph 3, under a of the Vienna Convention on the Law of Treaties (hereinafter: VCLT), the subsequent agreement laid down in the MAP decision must be taken into account when interpreting the DTA. After all, the IoNE did not yet exist at the time the Treaty was concluded. According to the inspector, the subsequently agreed understanding constitutes a clarification and confirmation of what followed from the context of the DTA in the years prior to the entry into force of the MAP decision, namely that Brazil’s qualification of the IoNE as interest must be followed.
The Court is of the opinion that the subsequent agreement as laid down in the MAP decision does not need to be taken into account. The Court disregards this agreement, if only because it had not yet been reached in the year in question and cannot be given retroactive effect.
In light of the foregoing, the decisive qualification of the IoNE is, in the Court’s opinion, that of a dividend within the meaning of Article 10, Paragraph 3 of the Dutch-Brazilian DTA. This means that a tax sparing credit of 25% must be granted.”
The full text of the judgment of the Court of Appeal of Amsterdam of July 30, 2025 can be found here.
Copyright – internationaltaxplaza.info
Follow International Tax Plaza on Twitter (@IntTaxPlaza)
