Dividend Distribution from a Dutch Company: Supreme Court Clarifies Anti-Abuse Rules
Are you distributing dividends from a Dutch company to a foreign shareholder? Then Dutch dividend withholding tax and anti-abuse rules may come into play. The Dutch Supreme Court has recently provided important clarification on how these rules should be applied. What does this mean for your structure as an entrepreneur or group company? In this blog, we explain it in a clear and practical way.
What happens when you distribute dividends?
When a Dutch company distributes dividends, it is generally required to withhold Dutch dividend tax. In international structures, this tax can often be reduced or eliminated, for example under a tax treaty, via the EU Parent-Subsidiary Directive, or through domestic exemptions. However, the Dutch tax authorities closely assess whether these benefits are applied correctly.
When do anti-abuse rules apply?
The Dutch Dividend Withholding Tax Act includes an anti-abuse provision. This rule prevents taxpayers from benefiting from tax advantages if the structure is partly aimed at avoiding Dutch dividend tax and lacks valid business reasons reflecting economic reality. This is often referred to as an artificial arrangement.
Examples include an intermediate holding company in a low-tax jurisdiction with little or no substance, such as no staff, no office, or no real activities.
What did the Supreme Court decide?
The Dutch Supreme Court has clarified how the anti-abuse test should be applied.
Business reasons are essential
If there are valid commercial or economic reasons, the structure is less likely to be considered abusive.A holistic assessment is required
The assessment should not be limited to the legal structure. The actual facts and circumstances must also be considered, such as where management is located, where key decisions are made, and the role and function of the holding company.Burden of proof is shared
The Dutch tax authorities must first demonstrate that abuse may exist. If they do, the taxpayer must then substantiate the business rationale.
What does this mean for your structure?
Do you have an international holding structure? Then it is important to review the economic substance of each entity, the presence of personnel and office space, and the role each entity plays within the group. Proper documentation is key to support your position and reduce risks in case of a tax audit.
Practical tips for SMEs
Review your structure regularly. What worked in the past may no longer be compliant. Document business reasons, for example in board minutes or internal policies. Avoid empty holding companies, as substance is increasingly important. Seek timely advice, especially before distributing dividends abroad.
