Fund Taxation Alert 2024-07
European Commission Challenges Dutch Tax Rules for Investment Funds, Citing Discrimination Against Foreign Investment Funds
European Commission Challenges Dutch Tax Rules for Investment Funds
Background - Dutch Dividend Withholding Tax and Non-Resident Investment Funds
The Dutch Supreme Court issued landmark rulings on 23 October 2020 and 9 April 2021 that made it (practically) impossible to claim refunds of Dutch dividend WHT paid on dividends received from investments in the Netherlands. For the current refund system of dividend withholding tax paid (dividend withholding tax reduction scheme), the Supreme Court held that there is no restriction of the free movement of capital (article 63 TFEU) and that if there was a restriction that it is up to the country of residence of the investment fund, to resolve the restriction. KPMG believes that – looking at case law of the CJEU – there are strong arguments to challenge this. Consequently, on behalf of a number of non-resident investment funds KPMG in the Netherlands raised a complaint with the European Commission in July 2022, considering that the less favorable treatment of non-resident investment funds constitutes a restriction of the EU principles of the free movement of capital.
New development - European Commission Challenges Dutch Tax Regulations
In July 2024, the European Commission formally notified the Netherlands of its discriminatory dividend withholding tax reduction scheme, which favors domestic over foreign investment funds, as the Netherlands failed to extend the Dutch dividend withholding tax reduction scheme to foreign investment funds, which are comparable to domestic investment funds. The Commission argues that this practice violates the principle of free movement of capital within the EU and EEA. As a result, the Netherlands has been given two months to respond and rectify this discriminatory tax treatment. Failure to adequately address the issue could lead to further action by the Commission, potentially resulting in legal consequences.
KPMG comment
The Netherlands' failure to extend the tax reduction scheme to non-resident investment funds has raised concerns about discriminatory practices and potential violations of EU law. The outcome of the Commission's intervention will likely have a significant impact on the tax treatment of non-resident investment funds in the Netherlands. Our team of tax specialists and project managers is available to assist you in navigating the complexities of these WHT reclaims.
Should you have any questions/comments, please do not hesitate to contact us.
