As we reported on March 31, 2023, on March 30, 2023 the Dutch tax authorities started with the publication of position papers that were drafted by its knowledge groups. We have now made a start with going through these position papers and to start publishing an English summary of the position papers we feel might be most interesting for international tax specialists.
In this article we will discuss position paper KG:024:2023:7 regarding the withholding exemption for Dutch dividend withholding taxes and the notification obligation as laid down in the Dutch dividend withholding (the DDW) Act, which was published on April 4, 2023 on the website of the Dutch tax authorities.
In this position paper the Knowledge Group on dividend withholding tax and withholding tax has answered the question whether a failure to comply, or to comply in a timely manner, with the information obligation as laid down in Article 4, Paragraph 11 of the DDW Act, means that the withholding exemption as laid down in Article 4, Paragraph 2 of the DDW Act does not apply.
Reason
BV X (a Dutch resident) distributes dividends to a parent company established in another EU Member State. Pursuant to Article 4, Paragraph 2 of the Dutch dividend withholding tax Act 1965 (hereinafter: the DDW Act), BV X does not withhold any dividend withholding tax over the distribution. BV X subsequently fails to make file a statement as meant in Article 4, Paragraph 11 of the DDW Act.
Question
Does non-compliance or late compliance with the information obligation as laid down in Article 4, Paragraph 11, of the DDW Act mean that the withholding exemption of Article 4, Paragraph 2, the DDW Act does not apply?
Legal context
Article 4, Paragraph 2 of the DDW Act
Tax is not withheld from the proceeds on shares, profit-sharing certificates, capital contributions as referred to in Article 10, Paragraph 1, under c, of the Dutch corporate income tax Act and loans as referred to in Article 10, Paragraph 1, under d, of that law, if:
a. the beneficiary is a body that, according to tax laws of:
1°. another EU Member State, or another State that is a party to the Agreement on the European Economic Area, is a resident of said State, or
2°. a State with which the Netherlands has concluded a treaty for the avoidance of double taxation or a public body within the Kingdom for which the Netherlands has made arrangements for the avoidance of double taxation, that provides for an arrangement for dividends, not being an EU Member State or a State that is a party to the Agreement on the European Economic Area has its registered office in said State, and
b. at the time when the proceeds are made available, the beneficiary has an interest in the withholding agent to which either the participation exemption as referred to in Article 13 of the DCIT Act, or the participation settlement as referred to in Article 13aa of the DCIT Act would apply if it was a resident of the Netherlands.
Article 4, Paragraph 11 of the DDW Act
For the second paragraph to apply, within one month after the time at which the proceeds were made available, the withholding agent is obliged to provide the tax inspector with a statement confirming that the conditions as set out in the second, third and fourth paragraphs have been met, and to submit a statement with the tax inspector in accordance with rules to be laid down in a Ministerial Decree.
Answer
No. Failure to comply with the information obligation as laid down in Article 4, Paragraph 11 of the DDW Act, or not to do so in a timely manner, does not mean that the withholding exemption of Article 4, Paragraph 2 does not apply.
From the analysis of the tax autorities
Article 4, Paragraph 2 of the DDW Act provides for a withholding exemption for cross-border dividend distributions. This withholding exemption has an imperative character which means that the withholding agent has no choice on whether or not to withhold.
As of January 1, 2018 the withholding exemption of Article 4, Paragraph 2 of the DDW Act has been extended to cross-border distributions to third countries with which the Netherlands has concluded a DTA. As a result, the withholding exemption is also mandatory in these cases. At the same time when the extension of the withholding exemption was included I Article 4, Paragraph 2, an obligation to provide information has been included in Article 4, paragraph 11 of the DDW Act.
The mandatory nature of the withholding exemption in the relationship with another EU Member State arises from the Parent-Subsidiary Directive. The withholding exemption of Article 4, Paragraph 2 of the DDW Act must therefore be interpreted in accordance with the Directive and can in principle only be refused in the event of fraud and abuse (Article 1, Paragraph 2 of the Directive). It follows from the Euro Park Service case (CJEU March 8, 2017, ECLI:EU:C:2017:177) that failure to comply with administrative obligations in itself is insufficient evidence for fraud and abuse based on which an exemption pursuant to a Directive can be refused.
From the aforementioned It can be deduced that an obligation to submit a statement for the withholding exemption to apply would be contrary to EU law and that the legislator did not have this in mind when introducing Article 4, Paragraph 11 of the DDW Act. As appears from parliamentary history, the inclusion of the information obligation is intended to provide the tax inspector with the necessary information to be able to assess the whether the withholding was justifiably omitted and not as a condition for applying the withholding exemption.
Pursuant to Article 67ca, Paragraph 1, under d of the State Taxes Act, if the information obligation is not complied with, or is not complied with in a timely manner, the tax inspector may impose a fine. From this it can also be deduced that the application of the withholding exemption is not dependent on compliance with the obligation to provide information. If the withholding exemption would not apply because the statement was not submitted, or not submitted in a timely manner, the information obligation would also lapse and the penalty provision would therefore be meaningless.
The full text of the position paper, including the full analysis can be found here on the website of the Dutch tax authorities. (Available in the Dutch langage)
Other position papers of the Knowledge Group on dividend withholding tax and (other) withholding taxes of which we already made an English summary can be found here.
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