Tax Flash: CJEU rules that Dutch tax rules on dividends paid to non-resident UCITS partly violate EU law
On 30 January 2020, the Court of Justice of the European Union (“CJEU”) issued its judgement in the case of Köln Aktienfonds Deka (“KA Deka”). The CJEU answered two preliminary questions from the Dutch Supreme Court on the compatibility with EU law of differences in the Dutch dividend withholding tax regime, depending on whether the recipient is a non-resident UCITS or a Dutch resident UCITS qualifying as a so-called “fiscal investment fund” (fiscale beleggingsinstelling, “FBI”). The judgement makes clear that the Dutch FBI-regime is at least partly not in line with the EU treaties. The Dutch Supreme Court will now need to apply the CJEU findings to the specific case.
This judgement is relevant for funds and other interested parties in a similar position. It may furthermore impact several cases pending before the Dutch courts in which non-resident UCITS claim a refund of Dutch dividend withholding tax based on the free movement of capital under the TFEU.
Dutch FBI regime
Under Dutch tax law, UCITS qualifying as an FBI may claim a refund of Dutch dividend withholding tax. This requires meeting in particular the following two conditions:
- The shareholders or participants must meet certain requirements, generally related to the percentage of investment (the “shareholder requirements”).
- The UCITS must distribute all proceeds eligible for distribution within 8 months after the relevant financial year (the “redistribution requirement”).
Judgement of the CJEU
The CJEU first decided that the shareholder requirements comply with the free movement of capital, under two conditions: (i) the requirements should not “de facto” constitute a less favorable treatment for non-resident UCITS and (ii) the tax authorities should require proof from both resident and non-resident UCITS that they comply with the shareholder requirements. It will be for the Dutch national court to investigate whether these conditions are met.
Further, the CJEU decided that the redistribution requirement is in conflict with the free movement of capital, if two conditions are met. First, in the home state of the UCITS, the proceeds should be deemed distributed or are included in the shareholders’ or participants’ tax base in that state, as if they were distributed. Second, in view of the objective pursued by the requirement, the non-resident UCITS is in a situation comparable to that of an FBI, which again will have to be investigated by the Dutch national court. The CJEU confirms that, if the objective of the redistribution requirement is taxing the proceeds at the level of the participant, a non-resident UCITS is comparable to an FBI.
Following this CJEU judgement, the domestic procedure will resume. Shortly, the Dutch Supreme Court can be expected to answer the preliminary questions of the Lower Court. It is then up to the Lower Court to determine how to precisely apply the framework laid down by the CJEU (and the Supreme Court) in the case of KA Deka.
The judgement only deals with years before the introduction of the “remittance reduction” (afdrachtsvermindering) in Dutch tax law (years prior to 2008). It is currently not yet clear whether the outcome of the case would be different under the new remittance reduction regime.
The CJEU’s ruling is of relevance for other cases with a similar fact pattern. The KA Deka case, however, does not cover situations where the shareholders or participants are resident in a state that is neither the home state of the UCITS, nor the investment state. It is therefore still open whether the decision of the CJEU on the redistribution requirement in this case would also apply to such ‘triangular situations’.