On 18 July 2025, the Supreme Court decided in two long-awaited judgments on the question of whether or not dividend withholding tax should be withheld on a dividend payment from the Netherlands to a Belgian holding company. Although the judgments relate to dividend payments from a Dutch company to two Belgian companies, this judgment will also have consequences for dividend payments to other countries.

Dividend withholding tax

If a Dutch company pays dividends to its shareholder, then in principle 15% dividend withholding tax is due. This levy may be reduced or exempted under certain circumstances. Based on the exemption in the Dividend Withholding Tax Act, a Dutch company does not have to pay dividend withholding tax if:

1. The parent company is established in the EU/EEA or a treaty country;
2. It owns at least 5% of the shares in the distributing company (and the participation exemption applies); and
3. There is no abuse.
   
   

Abuse occurs when two tests are met. If both tests are not met, dividend withholding tax may be omitted.

• Subjective test (Main Purpose Test): Is the structure set up with the main purpose of obtaining a tax advantage? The idea of disregarding the parent company is important for this, namely dividend withholding tax is also due if the dividend is not paid to the direct shareholder, but to the ultimate shareholder. For example, if the ultimate shareholder is a person, dividend withholding tax would be due and if the direct shareholder is a company this might not be due. The same applies to the situation where the ultimate shareholder is located in a country with a higher withholding tax rate based on a tax treaty.
• Objective test: Is the structure artificial and without any economic reality? The structure must be based on valid business reasons that reflect economic reality.

The judgments of 18 July

In its ruling, the Supreme Court has explained when there is abuse.

The two cases concern Belgian family businesses where dividends have been paid from the Netherlands to Belgian shareholders. The Belgian companies were not (actively) involved in the Dutch company, had no staff and no office space of their own. In addition to the Dutch shares, one of the Belgian entities also had shares in other companies and the Court of Appeal ruled that this was a material company (e.g. a company with relevant genuine economic activities). The other entity no longer had this but did have two cars on the balance sheet (old-timers).

The most important points from the Supreme Court's ruling are:

• A shareholder may have a material company, but this does not alter the fact that there can be no abuse. In this case, according to the Court of Appeal's judgment, the Dutch shares were not functionally allocated to the shareholder's business assets, which means that there is still abuse. There must therefore be active management/management of the Dutch company.
• It must be examined who has the actual control over the dividends. Even if there is no (legal) obligation to distribute the dividend, the actual control may still lie with someone else.
• Existing structures may qualify as abusive if they are artificial or are continued without economic justification. The construction could have been set up based on valid business reasons at the time of the set-up but may have to be regarded as artificial from a certain point on. This is the case, for example, if activities change at the level of the shareholder.
• A construction can consist of several parts or steps. If one or more of these parts or steps are artificial, then there may already be abuse. It is not necessary that the entire structure or all steps are artificial.
• It is up to the tax inspector to make it plausible that there has been abuse. The company can then provide evidence to the contrary.
  
  
  

What does this mean in practice?

For companies with a shareholder or participation abroad, we recommend reviewing the structure. Due to the fact that old, at the time valid, structures can also be regarded as abuse, we advise you to carefully examine what the structure looks like, what business considerations there are for the structure, whether there is sufficient substance, what the actual activities are and therefore what the consequences would be if a dividend were to be paid.

Would you like to know more about the consequences of these Supreme Court cases for your company? Our advisors can advise you on this.