Update: Dutch Advocate General confirms IoNE qualifies exclusively as dividend under NL-Brazil tax treaty

The Dutch Advocate General (Dutch A-G) has advised the Dutch Supreme Court to decide that IoNE exclusively qualifies as dividend for Treaty purposes (allowing 25% tax sparing credit) and to decide on the question whether the MAP agreement impacts such qualification. Based on this new development we advise clients to consider also objecting against assessments applying only a 20% tax sparing credit post MAP agreement (2022).

Key takeaways

IoNE qualifies as dividend under the Treaty

Both Dutch Courts of Appeal concluded in the recent rulings that IoNE falls under Article 10(3) of the Treaty as ‘income from shares’, entitling Dutch taxpayers to a 25% tax sparing credit under the Treaty. The Hague Court further held that IoNE qualifies exclusively as dividend, while the ’s-Hertogenbosch Court acknowledged that IoNE exhibits features of both dividend and interest, but ultimately gave decisive effect to the dividend article.

Dutch domestic law interpretation prevails

The Hague Court applied Article 3(2) of the Treaty and ruled that, in the absence of a treaty definition, the Dutch domestic qualification of IoNE as ‘income from shares’ prevails as the The Hague Court found no contextual reason to treat IoNE as interest.

Interpretative hierarchy and taxpayer protection

The ’s-Hertogenbosch Court emphasised that in case of doubt, the Treaty should not be interpreted to the detriment of the taxpayer. Even if IoNE could arguably fall under both the dividend and interest article of the Treaty, the taxpayer is entitled to the tax sparing credit under both articles (in effect the highest tax sparing credit prevails)..

No retroactive effect of the MAP agreement

Both Dutch Courts of Appeal confirmed in the recent rulings that the MAP agreement between Brazil and the Netherlands, wherein the competent authorities agreed to treat IoNE as interest, does in any case not apply retroactively.

Dutch A-G follows The Hague Court and questions MAP application in general

The Dutch A-G does not only agree with the Courts of Appeal that the MAP agreement does not have retroactive effect, he argues that the interpretative MAP should have no effect at all since there is no unclarity between Brazil and the Netherlands that IonE should be considered as ‘income from shares’. An interpretative MAP cannot amend or establish Treaty obligations in absence of democratic review and approval.

Background

IoNE (Portuguese: Juros sobre o Capital Próprio) is a hybrid instrument under Brazilian law. While IoNE resembles a dividend, being paid to shareholders in proportion to their equity, some argue it is treated as interest for Brazilian tax purposes, considering IoNE is deductible for the paying company and subject to Brazilian withholding tax. This hybrid nature has led to uncertainty and discussions with respect to the qualification under the Treaty, particularly regarding whether IoNE should be treated as dividend (Article 10) or interest (Article 11), and which tax sparing credit applies under the Treaty: 25% for dividends or 20% for interest.

In 2020, the Dutch State Secretary issued a decree stating that IoNE should be treated as interest for Treaty purposes. This position was later ‘confirmed’ in the MAP agreement between the Netherlands and Brazil in 2022.

In 2023, Dutch lower courts ruled that the MAP agreement could not be applied retroactively and that IoNE should be treated as dividend for the years 2018 and 2019, entitling the taxpayer to the higher 25% tax sparing credit.

The Hague Court (13 March 2025), and the ’s-Hertogenbosch Court (30 July 2025) have issued their decisions also confirming that IoNE qualifies as a dividend under the Treaty, in any case for the years prior to the MAP agreement. These rulings provide important clarification on the Treaty treatment of IoNE and follow earlier lower court judgments from 2023 and 2024.

Appeals were filed by the State Secretary of Finance against these decisions from The Hague Court and the ’s-Hertogenbosch Court. The Dutch A-G has issued its opinion advising the Supreme Court to follow The Hague Court’s decision.  

The Hague Court: IoNE is exclusively dividend

The Hague Court adopted a strict interpretation, concluding that IoNE qualifies exclusively as a dividend under the Treaty. Applying Article 3(2) of the Treaty, The Hague Court held that the term ‘income from shares’ is not defined in the Treaty and must therefore be interpreted according to Dutch domestic law, unless the context requires otherwise. Under Dutch law, IoNE is considered ‘income from shares’, as it is paid to shareholders in proportion to their shareholding and only in the presence of profits. The Hague Court rejected the relevance of Brazil’s domestic tax treatment, stating that the domestic Dutch qualification governs the qualification in the absence of a treaty context requiring otherwise.

The Hague Court further ruled that IoNE does not fall within the definition of interest under Article 11(4) of the Treaty, as it is not income from a debt claim and cannot be ‘assimilated to income from money lent’ under Brazilian tax law. In this respect The Hague Court considered that there is no debt, no repayment obligation, IoNE can only be distributed by shareholders’ resolution, IoNE distributions are made to shareholders in their capacity as shareholders, on the basis of their shareholding, in proportion to their shareholding, and subject to the presence of available profit.

Importantly, The Hague Court also upheld that the MAP agreement does not apply retroactively and cannot affect the taxpayer’s position for earlier years.

’s-Hertogenbosch Court: Dividend prevails in case of overlap

The ’s-Hertogenbosch Court took a more nuanced approach. While acknowledging that IoNE reflects features of both dividend and interest, the ’s-Hertogenbosch Court ultimately concluded that the dividend article under the Treaty should prevail. The ’s-Hertogenbosch Court noted that the Treaty does not contain an explicit hierarchy between Articles 10 and 11. After which the ‘s-Hertogenbosch Court emphasised that any ambiguity in treaty interpretation should not be resolved to the detriment of the taxpayer. Even if IoNE could arguably fall under both articles, the taxpayer is entitled to the tax sparing credit under both articles (in effect the highest tax sparing credit under the dividend article would prevail). Like The Hague Court, the ’s-Hertogenbosch Court ruled that the MAP agreement does in any case not have retroactive effect and cannot alter the taxpayer’s entitlement for years prior to the MAP agreement.

The Dutch tax authorities have filed an appeal to both of the Courts of Appeal rulings mentioned above and these appeals are pending final decision by the Dutch Supreme Court.

Dutch A-G: IoNE exclusively a dividend and MAP has no effect

The Dutch A-G advises the Supreme Court on certain cases which it deems relevant to issue its decision on. The Dutch A-G issued its opinion on the appeal filed against The Hague Court’s decision and the ’s-Hertogenbosch Court. The Dutch A-G has advised the Supreme Court to follow the ruling issued by The Hague Court. According to the Dutch A-G, the Dutch interpretation should be decisive for the Treaty qualification of IoNE as the context did require otherwise. There is no doubt that IoNE should solely qualify as a ‘income from shares’ for Dutch tax purposes. Hence, IoNE should exclusively qualify as a dividend under article 10(3) the Treaty. Reference is also made by the A-G to the German and Spanish highest courts that have also ruled that Brazilian IoNE should qualify as ‘income from shares’, which relevant treaties contain(ed) similar definitions of dividend and interest.

As opposed to the decisions of Dutch Courts of Appeal, the A-G opinion, and the abovementioned foreign courts, it is noted that the MAP agreement does not seem to consider that IoNE can be considered ‘income from shares’. Instead of considering the qualification under Dutch law, it merely considers the qualification for Brazilian tax purposes. Based on some characteristics of IoNE, it is concluded in the MAP agreement that IoNE should rather be considered ‘income assimilated from money lent’ (i.e. interest under the Treaty) than ‘income from other corporate rights’ (i.e. dividend under the Treaty) for Brazilian tax purposes.

In addition, the Dutch A-G argues that the MAP agreement, as a so-called interpretative MAP agreement, should have no effect. It cannot be considered an agreement between the parties within the meaning of the Vienna Convention and should not be considered as part of the Treaty context. The Dutch A-G considers this in line with previous Dutch Supreme Court case law. The Dutch A-G does not only agree with the Courts of Appeal that the MAP agreement does not have retroactive effect, he argues that the interpretative MAP should have no effect at all since there is no unclarity between Brazil and the Netherlands that IonE should be considered as ‘income from shares’. An interpretative MAP cannot amend or establish Treaty obligations in absence of democratic review and approval. Hence, in view of the Dutch A-G the MAP agreement should have no effect for both years prior to the MAP agreement as well as for years after the MAP agreement.

We encourage the Dutch Supreme Court to take the overall non-applicability of the MAP agreement into account when deciding on these pending cases.

We will continue to monitor developments and provide updates as the Supreme Court proceedings unfold.

Contact us

Please contact a member of the Region Team Latin America or your regular trusted contact at Loyens & Loeff for further information and assistance. 

For background, please see our earlier updates.