Conclusion Dutch AG whether it is allowed to levy Dutch dividend withholding tax on dividend payments to former Netherlands Antilles

By Emile G. Steevensz
Dutch Attorney General Wattel at Dutch Supreme Court draws conclusion whether the Netherlands is allowed to levy Dutch dividend withholding tax on dividend payments to former Netherlands Antilles
In our June 9, 2014 publication we announced that the Court of Justice of the European Union (“CJEU”) decided that the Netherlands is allowed to levy dividend withholding tax on dividend distributions by a Dutch company to its Netherlands Antilles parent company.
Summary of the cases
The joined cases C-24 and C 27/12 can be summarized as follows:
- In 2005 The Dutch companies each paid a dividend to its parent company in Curacao.
- Under the Tax arrangement of the Kingdom, the Dutch dividend withholding tax was reduced to 8.3%.
- The parent companies took the standpoint that the withholding tax was not in agreement with the free movement of capital as stated in the TFEU which in certain cases also applies on capital transactions between EU member states and countries.
- The Supreme court of the Netherlands has asked the CJEU to rule over the following 2 questions:
a. Can an OCT be considered as a third 
b. Can the relationship between an OCT and country of which it is an OCT be considered an internal relationship as a result if which the free movement of capital would not apply between a EU member state and its OCT?
On the question asked by the Dutch Supreme Court the CJEU ruled, in short, that the Netherlands was allowed to levy dividend withholding tax to prevent ‘excessive capital flow to the Netherlands Antilles and reduce the attractiveness of the (former) Netherlands Antilles as a tax haven’. It is up to the Dutch Supreme court to decide whether the Dutch rules are indeed aimed to prevent an excessive capital flow to the (former) Netherlands Antilles and reduce the attractiveness of the (former) Netherlands Antilles as tax haven.
Conclusion A.G. Wattel
According to the A.G. with the Supreme Court, it appears from the CJEU decision that has the freedom capital provisions of The Treaty of Functioning of the European Union (“FTEU”) are not applicable between a E.U. member state and an Overseas Country and Territory (“OCT”).
The A.G. concludes that the Dutch dividend withholding tax is a measure within the scope of article 55 of the OCT-resolution, which provides for the possibility for E.U. member states to take measures aimed at combatting tax avoidance and tax fraud. 
On the CJEU remark whether this is a proportional measure, the A.G. states that given the participation exemption rules in the (former) Netherlands Antilles (which are still applicable in Curaçao and St. Martin) and a flow of money that stands opposite it, it cannot be said that the increase of the dividend withholding tax rate from 5% to 8.3% is disproportional to combat tax avoidance or tax fraud.  
The A.G. advices the Supreme Court to find the appeal unfounded.
We will have to wait whether the Supreme Court follows the conclusion of the A.G.
We note that under the new Tax Arrangement between the Netherlands and Curaçao (‘TANC’), a reduction of the Dutch dividend withholding tax to 0% is provided for:
a. Pension funds;
b. Public entities; 
c. Companies that hold at least 10% of the shares in the subsidiary and in turn are held for at least 50% by individuals resident in Curaçao or the Netherlands;
d. Companies that hold at least 10% of the shares in the subsidiary and are considered qualifying companies under the limitation of benefits clauses.
Transitional provision: 5%
The TANC introduces a 5% dividend withholding tax rate as a transitional provision through December 31, 2019 for existing structures that are excluded from treaty benefits under the limitation of benefits. 
The 5% dividend withholding tax is applicable for existing structures provided that the Curaçao parent company (i) has at least an interest of 25% of the nominal paid in capital in the subsidiary and is (ii) beneficial owner of the dividends.
The TANC is envisioned to come into force on January 1, 2015.
We recommend waiting to distribute dividends and review the possibilities to obtain a reduction of Dutch dividend withholding tax under the TANC.
Emile G. Steevensz
This Publication contains general information only, and Steevensz|Beckers Tax Lawyers, its member firms or related parties (collectivelyreferred to as Steevensz|Beckers) are not, by means of this publication, rendering professional advice or services. Although we endeavor 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. Before making any decision or taking any action that may affect your finances or your business you should consult a qualified professional advisor. No entity of Steevensz|Beckers shall be responsible for any loss whatsoever sustained by any person who relies on this publication.
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