Finnish investment fund entitled to full refund of Dutch dividend withholding tax

On 9 March 2012, the Dutch Court of Appeal in Den Bosch rendered a decision in a case dealing with an exempt Finnish investment fund that had claimed a full refund of withholding tax (“WHT”) suffered in the Netherlands. The issue was whether the refusal to grant a refund of the dividend WHT was to be considered as contrary to the free movement of capital based Article 56 (now article 63) of the EC Treaty. The Court of Appeal concluded that the refusal to grant a refund of the dividend WHT tax was contrary to the free movement of capital. The reasoning behind the decision of the Court was that the Finnish investment fund was, according to the Court, in a comparable situation to a Dutch legal entity, which would have been entitled to a full WHT refund. Since the Dutch legal entity and the Finnish investment fund were in a comparable situation, the Court concluded that the fund was entitled to a WHT refund.

The Dutch Government decided to appeal this decision before the High Counsel. This may lead to a referral to the ECJ for a preliminary ruling in this matter. At this stage, the timeframe in which the High Counsel will render its decision and/or refer the matter to the ECJ is not available.

With regards to the potential implications for third countries, Article 10 of the Dutch withholding tax Act of 1965 covers not only EU and EEA countries but also third countries with agreements on exchange of information. This means therefore that US, Australian and Canadian investment funds as well as tax-exempt entities may enter into the scope of the decision.