Originally published: January 2024
Last week, the Dutch Supreme Court (SC) ruled on the application of the Dutch dividend stripping specific anti abuse rules (SAAR) (https://lnkd.in/eUBtRxWG). The judgement clarifies the role of the SAAR, but it’s probably of wider interest when it touched on the meaning of ‘beneficial ownership’ (BO).
To set the scene: the Netherlands levies up to 15% DWHT (reduced or exempt in certain cases). Dutch taxpayers receive a full credit, provided they are both ‘person entitled to proceeds’ (PETP, ‘opbrengstgerechtigde’, comparable but not identical to legal owner) and BO of the dividend. But if the conditions of the SAAR are met, the PETP is deemed not to be the BO, denying the DWHT exemption, reduction or credit.
In the court case, the Dutch tax authorities denied a DWHT credit. The High Court agreed as they regarded the structure artificial, though it fell outside the wording of the SAAR. The SC disagreed, saying that if the SAAR was not triggered, DWHT credit should be available to a person who is both PETP and BO of the dividend. The SC ruled that the PETP is regarded the BO “if they can freely dispose of the proceeds and do not act as a fiduciary or agent when receiving them”.
It depends on your perspective on just how much this clarifies BO. Three questions come in particular:
1. Does this Dutch domestic BO concept (as explained by SC) coincide with BO clauses in Dutch double tax treaties (DTTs) and/or as applied by the ECJ in the Danish cases?
2. If a PETP is not BO under Dutch domestic law, does this mean the dividend is not considered “paid to” the PETP? If so, would DTT or EU Directive relief be unavailable on this basis (ie even if there is no BO clause in the DTT or Directive)?
3. The reference to fiduciaries and agents may suggest a formalistic test (eg like Indofood). But just how wide is “freely dispose” assessed? Is legal right to “free dispose” sufficient or could tax authorities challenge the BO of limited substance vehicles (eg if the board in practice closely follows shareholder instructions)? This suggests a way that the SC verdict might be consistent with the ECJ Danish cases.
So do views BO continue to diverge (https://lnkd.in/eMGb7W-Ehttps://lnkd.in/ej-ajvJ4)? SC’s single line explanation is probably too little to base strong conclusions on. To make matters more complicated, another Dutch SAAR attacks limited substance SPVs, under rules targeting ‘wholly artificial arrangements’ (without invoking BO). Those cases and their DTT and EU law aspects are being litigated too (https://t.co/LKCjEvvw7jhttps://lnkd.in/e8ApQ3PGhttps://lnkd.in/eQzrG-5g). So sit tight and we might learn more.
Obvious disclaimers: this is not advice. These views are my own and do not necessarily represent my employer.
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