Non-Dutch residents: get your withholding tax back!

Recently, the Supreme Court ruled in three judgements that foreign individuals and companies could (partially) get back the withheld dividend tax that they had paid, insofar as a Dutch individual or company was paying less tax.

Based on European law (the free movement of capital), foreign entities must not be taxed more heavily than in the comparable domestic situation. (By foreign is meant: non-resident in the Netherlands.) This means that each case must be assessed as to whether a similar domestic entity would have a lower tax burden. If this is the case, the difference must be refunded to the foreign individual or company. These cases involve portfolio dividends (investment dividends). Of interest is the manner in which the comparison must be carried out. In addition, the affected party must make an actual request to obtain the refund.

For private investors, the comparison must be carried out using a calendar year for the period of comparison. According to the Supreme Court, the tax-free allowance in Box 3 may be allocated entirely to the Dutch shares. This means that a refund of dividend tax is more likely to be possible. A question that the Supreme Court has not answered is: to what extent may debts be included in the comparison? Any capital gains are excluded from the comparison. An important question about the comparison is: to what extent may the dividend tax be settled in the country of residence? If the remainder constitutes a higher tax burden then a refund may be requested. We expect that a request for settlement may be submitted up to five years after the end of the calendar year in question.

The following applies to foreign companies. Domestic companies are liable to pay corporate income tax (at 20%/25%) on the dividend received after deduction of costs. Thus, it depends on which costs are deducted that determine whether the 15% dividend tax amount is higher than the corporate income tax amount. The Supreme Court (following the European Court of Justice) has ruled that only the costs of collection of the dividend are eligible for deduction. It seems that the Supreme Court has followed the judgement of the European Court of Justice in that both the costs of financing the shares and the write off of dividends included in the acquisition price of the shares are not eligible because these costs do not qualify as costs for collecting the dividend. In practice, we expect this means that refunds will generally not be possible for foreign companies.

It is expected that the state secretary of finance will soon draw up a policy on how these judgements will be handled. The chancellor reported earlier that this would be followed by a legislative change.

Do you want to know whether your situation entitles you to a dividend tax refund? If so, please contact us!

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Martijn van der Kroon
+31 (0) 6 11 51 03 85

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