On 15 September 2020 (Dutch Budget Day), the Dutch government announced changes to the credit and refund system for Dutch dividend withholding tax (DWT), pursuant to the Sofina case of the Court of Justice of the European Union (CJ EU).

The Sofina case concerned French dividend withholding tax on dividends paid to a corporate portfolio investor. According to the case, 15% French withholding tax is levied on distributions to foreign portfolio investors, while dividends to domestic portfolio investors are effectively not taxed (or are taxed at a later point in time) if the domestic portfolio investor is in a loss-position. The CJ EU decided that this difference between a domestic and foreign portfolio investor is an infringement of the free movement of capital and ruled that France should take a loss-position of the foreign portfolio investor into account.

In the Netherlands, a Dutch corporate taxpayer may credit any Dutch DWT levied against Dutch corporate income tax (CIT) due by it. A refund is granted to the extent the amount of Dutch DWT levied exceeds the CIT due. If the Dutch corporate taxpayer is in a loss-position, a full refund may therefore be available. Such refund is not available for foreign corporate investors that are not subject to Dutch CIT but that are otherwise in the same (loss-)position.

The Dutch government acknowledged that the current different treatment of Dutch corporate taxpayers and foreign corporate investors as reflected above may not be in line with EU law, based on the Sofina case. Therefore, the Dutch government intends to introduce legislation to limit the availability of a refund of Dutch DWT for Dutch corporate taxpayers, effective as of 1 January 2022. The system will be amended to allow (only) for a credit of Dutch DWT up to the CIT due in that year, with any uncredited Dutch DWT to be carried forward to future years. No (draft) legislative bill has been published yet.

Decree for refund

To remove any possible infringement of EU law until the aforementioned legislation becomes effective, on 26 November 2020, the Dutch government issued a decree that allows foreign corporate investors to obtain a refund of Dutch DWT withheld from portfolio dividends, in certain situations and subject to certain conditions.

The decree states that in essence a refund is possible insofar an EU/EEA corporate shareholder, had that shareholder been a Dutch tax resident, would have received a refund of Dutch dividend tax. The decree is formulated broadly, but in practice it will most likely mainly concern shareholders that are in a structural loss-making position or that use proceeds from investments in shares to cover obligations (e.g. insurance companies or retirement funds that do not qualify for benefits under already existing refund regulations). No refund on the basis of the decree is possible insofar the foreign shareholder can request a refund of Dutch dividend withholding tax on the basis of a tax treaty or on another basis.

Furthermore, as mentioned the decree only applies to shareholders holding portfolio investments in the Netherlands, requires the shareholder to be the beneficial owner of the dividends and to be a resident in the EU/EEA or a country with which the Netherlands agreed exchange of information on tax related issues. The request needs to be filed within three years after the dividend distribution. One request should be filed covering the Dutch dividend withholding tax levied during an entire financial year.

Game tax

We note that the above-mentioned refund procedure also applies for any game tax levied, but it is not expected that this will be applicable in practice.

Feel free to reach out to your trusted Loyens & Loeff advisor in case you have any questions regarding the above.