Preliminary questions to CJEU on refund of Dutch dividend withholding tax to non-resident investment funds

On 3 March 2017, the Dutch Supreme Court asked preliminary questions to the Court of Justice of the European Union (“CJEU”), on the potential discriminatory treatment of non-resident investment funds for Dutch dividend withholding tax purposes, as compared to Dutch investment funds (fiscale beleggingsinstelling, “FBI”). A positive outcome for the applicants would mean that the Netherlands would have to allow for refunds of dividend withholding tax for distributions by Dutch companies to non-resident funds that are sufficiently comparable to Dutch funds qualifying for the FBI-regime.

Discriminatory treatment
In the two cases, a German and a UK investment fund had claimed a refund of dividend withholding tax in the Netherlands. They argue that they are comparable to a Dutch FBI, and that denying such refund would place them in a worse position than if they were a resident of the Netherlands and granted FBI status. According to the funds, this discriminatory treatment constitutes an infringement of the free movement of capital as laid down in the Treaty on the Functioning of the EU.

In order to make use of the Dutch FBI regime, a fund has to meet several conditions, amongst others: the shareholders of the FBI must fulfill certain requirements (“shareholder requirement”), and the FBI is obliged to distribute its profits within eight months after book year-end (“distribution requirement”). Profit distributions by a Dutch resident FBI are subject to 15% dividend withholding tax unless specific exemptions/reductions under domestic law or tax treaties apply.

Previous decision
On 10 July 2015, the Supreme Court already decided in a similar case (involving a Luxembourg investment fund) that a non-resident investment fund is not comparable to a Dutch FBI because, unlike a Dutch FBI, a non-resident fund is not subject to Dutch dividend withholding tax when distributing the dividends received to the investors in the fund. However, based on a recent, comparable Danish case in which preliminary questions were asked to the CJEU (Fidelity Funds, C-480/16), the Supreme Court found that there is currently no full clarity as to how the comparability requirement has to be applied. Therefore, the Supreme Court decided to ask preliminary questions to the CJEU.

Preliminary questions asked
In the cases at hand, the Supreme Court asks the CJEU whether the fact that a non-resident investment fund is not entitled to a refund of dividend withholding tax, while a Dutch FBI is, constitutes an infringement of the free movement of capital. In addition, the Supreme Court asks some detailed questions by which it essentially wants to know what degree of comparability a non-resident fund needs to have in relation to an FBI in order to be allowed a refund of dividend withholding tax. Finally, the Supreme Court asks whether it would make a difference if the investor in the non-resident fund is residing in the Netherlands.