Netherlands: Only beneficial owner of dividend entitled to credit dividend withholding tax (Supreme Court decision)

The Dutch Supreme Court on 19 January 2024 held that only the beneficial owner of dividends is entitled to credit dividend withholding tax with respect to such dividends.

Summary

A Dutch company, part of a banking group, engaged in a strategy involving the acquisition of shares in Dutch funds, entering into futures contracts with such shares, and lending out shares to its UK-based parent company. The company claimed that before dividends were distributed, the share-secured loan was always repaid temporarily, allowing it to credit the dividend withholding tax against its corporate income tax payable. The taxpayer had a securities deposit account registered in its name at a bank/custodian in France. After the shares had been acquired by the taxpayer, they were initially placed in the securities deposit account and then lent out to the parent company, which always repaid each of the share-secured loans immediately before the date on which the dividends on the shares were distributed. Shortly after the dividend distribution, the taxpayer re-lent the same class and number of shares to the parent company.

The Amsterdam Court of Appeals held that the conditions for crediting dividend withholding tax against corporate income tax payable had not been met. The court stated that while placing shares in a deposit account creates a presumption of legal ownership, if the shares are placed in the taxpayer’s securities account without a legally valid deed of transfer of legal ownership, the taxpayer cannot be considered the legal owner. The court also ruled that it was not plausible that the taxpayer had become the ultimate beneficial owner of the dividends on which the dividend withholding tax it sought to credit had been withheld.

The Supreme Court found that only the beneficiary of the dividends could credit the dividend withholding tax, which must be determined under Dutch international private law. The court also clarified that the beneficiary to the income is also the ultimate beneficial owner, provided they can freely dispose of the dividend and do not act as manager or agent, unless there is dividend stripping. The Supreme Court then referred the case to the Court of Appeals in The Hague to determine whether, under French cashless securities law, the taxpayer must be regarded as the holder of the shares at the time the dividends were distributed.

Read a January 2024 report prepared by the KPMG member firm in the Netherlands