On 3 December 2018, the Dutch Supreme Court published its decision in which it decided to maintain part of the preliminary questions to the European Court of Justice (“CJEU”) in the case Köln Aktienfonds Deka (C-156/17). At the same time, the Dutch Supreme Court decided to withdraw its request for a preliminary ruling in the case X Fund (C-157/17) and a similar question in the case Köln Aktienfonds Deka considering that, in the view of the Supreme Court, this question has already been sufficiently answered in the previous CJEU judgment in Fidelity Funds (C-480/16).
A Dutch Fiscal Investment Institution (“FII”) is entitled to a tax credit when it distributes its profits to its participants. The tax credit can be offset against the Dutch dividend withholding tax that the FII withholds at the moment of distribution, whereby effectively the Dutch input dividend withholding tax is being re-funded. Foreign investment funds have requested a similar treatment by filing requests for a refund of Dutch dividend withholding tax for past years, as they are not able to credit Dutch dividend withholding tax upon distributions of their profits. This has resulted in several litigations before the Dutch courts.
On 1 August 2016, a Dutch District Court referred questions for a preliminary ruling to the Dutch Supreme Court in the two aforementioned cases. Given the apparent legal uncertainties and the then pending Fidelity Funds case, the Dutch Supreme Court referred questions for a preliminary ruling to the CJEU.
In sum, the preliminary questions of the Dutch Supreme Court to the CJEU, related to the following:
- Is not providing a refund of Dutch withholding tax on the ground that a foreign investment fund does not have a Dutch withholding tax obligation on distributions to its investors in accordance with the free movement of capital?
- How are the shareholder and distribution requirements for an FII to be applied to a non-resident investment fund?
CJEU judgment in Fidelity Funds
In the meantime, the CJEU ruled in the case Fidelity Funds (C-486/16) that the Danish legislation in question, which provides a refund of Danish input dividend withholding tax to Danish UCITS funds, but subjects non-resident UCITS funds to a final non-refundable Danish dividend withholding tax was contrary to the free movement of capital.
Considering that the Dutch Supreme Court’s preliminary questions related to similar considerations as in Fidelity Funds, the CJEU asked the Dutch Supreme Court whether it wanted to uphold its requests for a preliminary ruling in the two aforementioned cases.
Decision of the Dutch Supreme Court
On 3 December 2018, the Dutch Supreme Court informed the CJEU that its first question as mentioned above has already been answered in Fidelity Funds. According to the Supreme Court, Fidelity Funds confirms that the fact that foreign investment funds do not withhold dividend tax on the profits paid to their participants, should not be a reason to deny these foreign investment funds a refund of dividend withholding tax. The questions with respect to the relevance of the shareholders and distribution requirements are, in the view of the Supreme Court, not answered in Fidelity Funds and are thus maintained.
The decision of the Dutch Supreme Court is positive news for foreign investment funds which filed claims in the Netherlands, as that the fact that they are not subject to a Dutch withholding tax obligation on distributions to their investors does not make them incomparable with a Dutch FII. Furthermore, a CJEU judgment on the relevance of the shareholders and distribution requirements is desirable and will finally provide certainty on the matter. The outcome of this case will likely dictate the course of action for pending refund claims in the Netherlands.
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