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Hague Court of Appeal – EC free movement of capital: In transactions with Netherlands, Netherlands Antilles is third country not overseas territory — Orbitax Tax News & Alerts

On 16 July 2008, The Hague Court of Appeal held in two joined cases (AWB 07/1037, AWB 07/1045, AWB 07/1048, AWB 07/1050 and AWB 07/2659, AWB 07/2661, AWB 07/2662, AWB 07/2669) that, where a capital movement vis-à-vis the Netherlands is involved, the Netherlands Antilles must be treated as a third country, rather than an overseas territory.

(a) Facts. The plaintiff was a Netherlands Antilles investment company that was the sole shareholder of a Netherlands company. The investment company had no permanent establishment in the Netherlands. In 2005 and 2006, a tax was withheld by the Netherlands subsidiary upon payment of dividends to its Netherlands Antilles parent company.

On the basis of Council Decision 2001/822/EC of 27 November 2001 on the association of the overseas countries and territories with the European Community (the Overseas Countries' Association Decision), the Netherlands Antilles company claimed a refund of the withholding tax under the Parent-Subsidiary Directive 90.435/EEC and Art. 56 of the EC Treaty (the free movement of capital). The tax administration rejected this claim, arguing that the Netherlands Antilles is a third country and, accordingly, cannot benefit from the provisions of the Overseas Countries' Association Decision.

(b) Issue. The issue was whether the Netherlands Antilles is an overseas territory or a third country.

(c) Decision. The Court of Appeal observed that the Overseas Countries' Association Decision applies only to capital movements between a Member State and an associated territory of another Member State. Consequently, the Netherlands Antilles shall be deemed a third country for the purpose of capital transactions with the Netherlands.

In addition, the Court ruled that, even if Art. 56 of the EC Treaty were applicable to the case at hand (and provided that the withholding tax suffered in the Netherlands could not be credited against any Netherlands Antilles tax under the Tax Regulation for the Kingdom (TRK)), the Netherlands Antilles company's claim must be rejected based on the standstill clause of Art. 57(1) of the EC Treaty. Finally, the Court observed that subsequent amendments to the TRK had no bearing on this conclusion.