Netherlands: Guidance on substance requirements for dividend withholding tax exemption
Failing to meet all formal substance requirements does not automatically disqualify a personal holding company from the exemption when genuine economic activity is demonstrated.
The Dutch tax authorities' Knowledge Group for Dividend Withholding Tax and Withholding Taxes on September 14, 2026, issued guidance on the level of substance required for a personal holding company to qualify for the Dutch dividend withholding tax exemption.
Background
The case concerned a European Union (EU) resident individual who owned an EU holding company that, in turn, held a Dutch operating subsidiary. The holding company employed the individual as a director, paid an arm's-length annual salary of €75,000, maintained office space in the individual's home country, and provided strategic oversight and management services to the Dutch subsidiary under a management agreement.
Under Dutch tax law, the dividend withholding exemption available for intra-group payments does not apply when the following two conditions are met:
- Subjective test: The interest is held with the principal purpose, or one of the principal purposes, of avoiding Dutch dividend withholding tax for another person.
- Objective test: The structure, transaction, or series of transactions is artificial insofar as it had not been set up on the basis of business reasons reflecting economic reality.
Based on settled case law of the Dutch Supreme Court, the subjective condition is in principle met if the underlying shareholder of the interposed foreign company, who directly holds the interest in the company established in the Netherlands, would owe more Dutch dividend tax without the intervention of the interposed foreign company.
Decision
The Knowledge Group concluded that, although the subjective anti-abuse condition was in principle met, the overall facts and circumstances demonstrated valid business reasons reflecting economic reality. Consequently, the structure was not considered artificial, and the dividend withholding tax exemption remained available. Notably, the Knowledge Group confirmed that the holding company's failure to meet all formal substance requirements, including the €100,000 payroll threshold, was not in itself sufficient grounds to deny the exemption when the arrangement reflected genuine economic activity.
Read a September 2026 report prepared by KPMG’s EU Tax Centre