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Advocate General Opinion Issued on Belgian Withholding Tax on Dividends Paid to Dutch Parent Subject to Zero Rate of Tax — Orbitax Tax News & Alerts

On 26 October 2016, the opinion of Advocate General Campos Sánchez-Bordona of the Court of Justice of the European Union (CJEU) was published concerning tax withheld at source on dividends paid by a Belgian subsidiary to its Dutch parent. The case involves Wereldhave Belgium, a limited partnership with a share capital, which is jointly owned by Dutch parents Wereldhave International (35%) and Wereldhave (45%). The Dutch parents are collective investment undertakings incorporated as public limited companies that are liable to corporation tax, but are subject to a zero rate.

In 1999 and 2000 Wereldhave Belgium distributed profits to its Dutch parents and paid withholding tax on that investment income at the rate of 5%. The Dutch parents then sought a refund of the tax withheld based on the exemption provided under the EU Parent-Subsidiary Directive. When the Belgian authorities failed to deliver a decision within six months, the parents brought an action before the Belgian court of first instance. The court found that tax should not have been withheld and ordered that the amount be repaid.

The court's decision was appealed on the grounds that the parent companies were not eligible for the exemption provided under the Directive because they were subject to a zero rate of tax in the Netherlands. In response, it was argued that the condition for the exemption on dividends is met since the Dutch parents are technically liable to corporation tax and that actual payment of tax is not required. In the alternative, it was argued that if the Parent-Subsidiary Directive is not applicable, then Articles 49 and 63 TFEU preclude the provisions of Belgian law relied on for the withholding of tax.

The case went to the Court of Appeal, Brussels, which decided to stay the proceedings and to refer the following questions to the CJEU for a preliminary ruling:

  1. Is Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States to be construed as precluding a national rule that does not waive Belgian withholding tax on investment income in respect of dividend payments made by a Belgian subsidiary to a parent company established in the Netherlands that fulfils the condition of a minimum participating interest and the holding of such an interest, on the ground that the Netherlands parent company is a fiscal investment undertaking that is required to distribute all its profits to its shareholders and, subject to that proviso, is eligible for the zero rate of corporation tax?
  2. If the answer to the first question is in the negative, are Articles 49 (ex Article 43 EC) and 63 (ex Article 56 EC) of the Treaty on the Functioning of the European Union (in the version in force since the amendment and renumbering by the Treaty of Lisbon) to be construed as precluding a national rule that does not waive Belgian withholding tax on investment income in respect of dividend payments made by a Belgian subsidiary to a parent company established in the Netherlands that fulfils the condition of a minimum participating interest and the holding of such an interest, on the ground that the Netherlands parent company is a fiscal investment undertaking that is required to pay all its profits to its shareholders and, subject to that proviso, is eligible for the zero rate of corporation tax?

In the Advocate General's opinion, the first question should be answered as follows:

Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States is not applicable to a dispute concerning withholding tax levied in Belgium on the profits distributed by a subsidiary to its parent company where the latter is a Netherlands collective investment undertaking that makes use of the zero rate of corporation tax.

Regarding the second question, the Advocate General is of the view that the question should be declared inadmissible.

Click the following link for the full text of the opinion.