Dutch Supreme Court requests preliminary ruling to the CJEU on dividend withholding tax refunds for foreign investment funds
On 3 March 2017 the Dutch Supreme Court referred questions to the Court of Justice of the European Union (“CJEU”) for a preliminary ruling in two cases regarding foreign pension funds that reclaim Dutch withholding tax (“WHT”) based on discrimination under EU law.
On 10 July 2015 the Dutch Supreme Court (“Court”) rendered a negative judgment with regard to a Luxembourg investment fund that had claimed that the difference in the tax treatment of Dutch and Luxembourg investment funds constitutes a restriction on free movement of capital (Article 63 TFEU) and that it should therefore be entitled to a refund.
The Court ruled that the Luxembourg fund was not objectively comparable to a Dutch resident fiscal investment institution (“FBI”) and thus no discriminatory treatment should be recognised.
Preliminary ruling request
In the light of the CJEU decision in the Miljoen case rendered on 17 September 2015, the Supreme Court was asked to reconsider its decision of 10 July 2015. The Supreme Court considered that there were good grounds for questioning the judgment of 10 July 2015. In addition, a Danish Court had, in a similar case (i.e. concerning the discriminatory treatment of a Luxembourg SICAV under Danish law), decided to refer the question on the EU compatibility of Danish law to the CJEU. Therefore the Court decided to request to the CJEU for a preliminary ruling.
The latter was asked to rule on whether refusing a refund of withholding tax on the ground that a foreign investment fund does not have a Dutch withholding tax obligation is in accordance with the free movement of capital. The CJEU was also asked to indicate how strictly the applicable shareholder and distribution requirements for an FBI should be interpreted when making the comparison with a non-resident fund. Finally, clarification was requested on whether there is an infringement in a situation where the participants in a foreign investment fund are residents of the Netherlands.
Having said all this, it remains unclear whether the CJEU will provide further clarification on the essential question of whether the investor level should be considered when assessing the notion of discrimination, comparable with the reasoning of the Santander ruling (C-338/11 to C-347/11). Following a broad argumentation issued by the Dutch Supreme Court, a transparent and comprehensive assessment by the CJEU is expected in the coming 20-30 months.
Following a minimalistic approach, current reclaims might be maintained in the expectation for clarification by the preliminary CJEU ruling. In the meantime, the Dutch District Court (first tier Court) will likely suspend pending cases until a final ruling has been reached.
As was highlighted in our previous Newsletter, there are arguments to sustain that claims may be filed back to 1 February 2008 without time limitation. With regard to claims that had been ultimately rejected, this should open the doors to filing new claims in order to benefit from a potentially positive decision of the CJEU.
Any tax advice in this communication is not intended or written by KPMG to be used, and cannot be used, by a client or any other person or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing, or recommending to another party any matters addressed herein.
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.