Fund Taxation Alert 2025-09

Under current Dutch law, domestic investment funds benefit from a favorable tax regime, being entitled to a reduction in dividend withholding tax on dividends received, which allows them to offset this tax against the withholding tax they are required to levy on distributions made to Dutch investors.

However, this preferential treatment does not extend to foreign (non-resident) investment funds, which cannot offset the Dutch withholding tax levied on dividends from Dutch companies, resulting in a disparity in tax treatment between domestic and foreign funds. As a consequence, Dutch investors are less incentivized to invest in non-resident investment funds.

Non-resident funds have brought legal challenges against this unequal treatment, particularly following two key judgments by the Dutch Supreme Court dated 23 October 2020 and 9 April 2021. These decisions have raised concerns about potential incompatibility with EU law.

As a result, several complaints were filed with the European Commission (“Commission”), requesting intervention to address the potential breach of EU principles and ensure equal treatment across member states.

On 25 July 2024, the Commission announced the opening of an investigation into the Dutch regime. While it did not confirm the merits of the complaints at that stage, it found sufficient grounds to examine potential violations of EU law.

Following the Commission’s formal notice of 25 July 2024, the Dutch authorities denied the existence of any discriminatory measures and declined to amend the existing legislation.

On 17 July 2025, the Commission issued a reasoned opinion to the Netherlands (INFR(2024)4017), concluding that the Dutch tax levy reduction scheme (afdrachtvermindering) breaches the free movement of capital as enshrined in Article 63 of the Treaty on the Functioning of the European Union and Article 40 of the Agreement on the European Economic Area.

The Netherlands now has two months to respond and implement appropriate legislative changes. If it fails to do so, the Commission may refer the case to the Court of Justice of the European Union for further action.

The Commission’s position is a welcome development. We believe this step significantly improves the prospects for non-resident investment funds to obtain refunds of Dutch dividend withholding tax.

Non-resident funds that have not yet filed refund claims should consider doing so promptly, keeping in mind that the statutory limitation period is three years.

We will continue to monitor developments and provide updates as further information becomes available.

Should you have any questions or require assistance, please do not hesitate to contact us.