Netherlands Reforms Dividend WHT Refund Rules

The Dutch Government has issued a decree to ensure the country’s dividend withholding tax rules comply with the European Court of Justice’s ruling in the Sofina case.

In case C-575/17, Sofina SA and others, the European Court of Justice ruled that France discriminated against non-resident taxpayers by refusing a refund of withholding tax collected on dividends paid by a resident company to a loss-making non-resident company. Such a refund was available for a loss-making resident company however. The case concerned tax withheld on dividends from portfolio investments.

In like manner to France, a Dutch resident company can credit withholding tax paid on dividends income against their corporate tax liability. If they have made a loss, the taxpayer may otherwise claim a refund of the withholding tax. However, such refunds are not available for loss-making portfolio shareholders established overseas that are not liable to Dutch corporate tax.

The Dutch Government has already announced its intention to restrict refunds of dividend withholding tax payments, and also gambling tax, for resident entities. However, these changes will apply only from January 1, 2022.

In the interim, the Government has published Decree no. 2020-24973 in its December 4 Official Gazette, which sets out how the country will offer relief to non-resident entities. Specifically, the decision explains how certain overseas taxpayers can recover dividend withholding tax and gambling tax. It is effective from December 5, 2020.

Specifically, the Decree sets out nine conditions that must be satisfied and the information that must be provided. These conditions limit the relief to entities that are in an equivalent loss position to Dutch resident taxpayers; are the beneficial owner of the dividends income; and are established in an EU or EEA state or a designated territory with an exchange of information agreement with the Netherlands covering the two taxes. The Decree includes anti-abuse provisions and stipulates that a request must be submitted within three years of the end of relevant financial year.

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