Thursday, December 19, 2019

Significant refund opportunities for pension funds with Dutch investments

Recent case law has led to new opportunities regarding potential refund of the Dutch withholding tax on dividends for foreign pension funds that hold investments in Dutch companies

A recent case from the Dutch Supreme Court regarding this matter involved a Japanese pension fund that has Dutch investments on which the Japanese pension fund received dividend payments. These dividend payments were subject to Dutch dividend withholding tax. The Japanese pension fund requested a refund for the dividend withholding tax. The request was denied by the Dutch Tax Authorities and consequently this case went to court.

At the first instance and the appeal, the court and the higher court both ruled in favor of the Dutch Tax Authorities. The higher court stated that the Japanese pension fund did not succeed in proving that it was the beneficial owner of the dividend payments. One of the criteria for a pension fund  to become eligible for the refund of Dutch withholding tax on dividends is the fact that the pension fund must be the beneficial owner of the dividend payments. Because of this, the higher court did not find it necessary to assess the comparability of the Japanese pension fund to a Dutch pension fund which is eligible for the refund of dividend withholding tax and consequently did not conclude on the main question whether the Dutch Tax Authorities treated these pension funds unfairly different compared to Dutch pension funds. The Dutch Supreme Court judged, however, that the burden of proof regarding the beneficial ownership should not lie with the pension fund; the Dutch Tax Authorities should have proven that the Japanese pension fund was not the beneficial owner of the dividend payments instead. Hence, in principle the Supreme Court now allows for refunds where the foreign pension funds are comparable to a Dutch pension fund that is eligible for the refund of Dutch dividend withholding tax in similar circumstances.

This new case law does widen significantly the application and the scope of the refund of Dutch dividend withholding tax for foreign pension funds. Foreign pension funds that hold investments in Dutch companies can consequently become eligible for this refund if they meet the criteria. This development is therefore of great importance for all foreign pension funds which hold investments in Dutch companies.

Not only the Dutch withholding tax on dividends has been a subject of discussion in recent years. In other countries similar issues have arisen, which have resulted in case law of the European Court of  Justice. A recent case involved a Canadian pension fund that held German investments and received dividend payments on these investments. According to the German Tax Authorities, the Canadian pension fund had to pay dividend withholding tax on these payments. The European Court of Justice ruled in this case that a Canadian pension fund does not have to pay German dividend withholding tax if comparable German pension funds do not have to. The ruling will probably entitle the Canadian pension fund to a refund of German dividend withholding tax as well.

Cases like these can also enhance the chances for foreign pension funds to become eligible for a refund of withholding tax on dividends with regard to their investments in Dutch companies. The attached flyer and case law provide insights with respect to this recent case law.

Do you have pension funds with investments in the Netherlands? Please take these opportunities into consideration as the amounts at stake (certainly going back multiple years) can accumulate to significant refund amounts.

Please contact Gijs Fibbe or Osgar Schaedtler to discuss this further and translate into concrete actions for your clients.

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