The Dutch Supreme Court have released decisions last month that provide further guidance on how foreign shareholders in the Netherlands can calculate any amounts owning to them regarding taxes on dividend withholding tax.
The rulings are in line with the European Court of Justice’s consideration of how to compare tax payments from domestic & foreign Shareholders. Last week some clarifications were provided based on these instructions.
The Supreme Court decided that the old system of charging withholding tax from foreign Shareholders is not consistent with EU legislation if the fees charged to foreign Shareholders exceed the tax charged to Dutch resident Shareholders, therefore foreign Shareholders may be entitled to a tax refund, as per the new law.
Dutch individuals are effectively charged tax at a rate of 1.2% times the market value of their investment as long as the tax-free threshold does not exceed € 25,000, which is an attractive scheme for both domestic and foreign investors.
Going forward, the sum of all shareholdings in Dutch companies held by foreign Shareholders will form the basis of the amount to be reduced by the tax-free threshold in full. This will allow for the foreign Shareholders to be taxed under the same rules applicable to domestic Shareholders.
While this is a welcome move to foreign Shareholders, the new regime has its critics. Some expert’s claim that further practical administrative guidance must be released for those on claiming back tax from previous years; with others suggesting that the abolishment of Dutch dividend withholding tax completely would be the simplest route.