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European Union-Netherlands

24 March 2007

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ECJ: hearing in case regarding Dutch withholding tax on outbound dividends

On 25 January 2007, the hearing in Amurta SGPS v. Inspecteur van de Belastingdienst Amsterdam (case C-379/05) took place before the European Court of Justice (ECJ).

The case concerns the Netherlands withholding tax regime applying in a context where the Parent-Subsidiary Directive (Directive) is not applicable, as the non-resident shareholder's shareholding does not reach the minimum participation required by the Directive. In particular, the issue of the case is whether the Netherlands dividend withholding tax regime, which provides for an exemption only for domestic dividends (i.e. those paid to shareholders subject to Netherlands corporate income tax or with a permanent establishment (PE) in the Netherlands to which the shareholding is attributable, where the shareholder's participation is at least 5%) but not for outbound dividends (i.e. those paid to non-resident shareholders without a PE in the Netherlands, where the shareholding is more than 5% but less than the minimum participation set forth in the Directive), is compatible with the EC free movement of capital. The outcome of this case has relevance even after the ECJ's decision in the Denkavit case (C-170/05) (see TNS:2006-12-14:E2-2) in which the ECJ concluded that the French legislation in question, by imposing a withholding tax on dividends paid to non-resident parent companies, whereas providing for a quasi-full exemption for dividends paid to resident parent companies, is incompatible with the EC freedom of establishment. Although the ECJ's decision in Denkavit held that the impact of an applicable tax treaty must be taken into account when deciding on the existence of a restriction on the freedom of establishment, it has not expressly clarified the question whether or not a restriction is imposed on the freedom establishment in the case when a non-resident shareholder may fully credit, on the basis of such tax treaty, the withholding tax levied by the source state against the tax due on the dividends in his residence state. The Amurta case is expected to answer the latter question.

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