On 30 January 2020, the European Court of Justice (“ECJ”) issued a ruling on a refund request for Dutch dividend withholding tax which was filed by a German investment fund (Köln-Aktienfonds Deka). The ruling is an important development as regards the comparability of foreign investment funds with Dutch fiscal investment institutions, and especially in relation to the shareholders requirement and the requirement to re-distribute the fund’s net-annual earnings within 8 months after year-end to its shareholders / participants (“re-distribution requirement”). We have previously informed you on the conclusion of the Advocate-General Pitruzzella (“AG”).
Köln-Aktienfonds Deka has requested a refund of Dutch dividend withholding tax withheld on dividend that it has received from its Dutch (portfolio) investments, arguing that a Dutch fund (“FBI”) was allowed receiving such refund under Dutch law (until 2007). Key question is whether Köln-Aktiënfonds Deka can be compared to a FBI under EU law. To meet the FBI regime, Dutch law has embedded various requirements regarding among others the quality and quantity of the shareholders in a FBI and the re-distribution requirement. Köln-Aktienfonds Deka argued that it does not have access to its shareholders information. It furthermore argued that, to the extent that annual earnings are not distributed, they are deemed to be distributed and taxed at the level of its shareholders / participants under specific German law.
In short, the ECJ ruled that the Dutch national court should determine whether or not resident and non-resident investment funds are subject to the same administrative burden for providing information of their shareholders / participants. If non-resident investment funds are subject to an excessive administrative burden, the shareholders requirement cannot be held against the non-resident investment fund. Furthermore, the Dutch national court should determine the main objective of the re-distribution requirement under Dutch national law: (1) taxation of shareholders / participants or (2) providing income / cashflow to the shareholders / participants of the fund. Should it be ruled that the re-distribution requirement aims at taxing the shareholders / participants (within a limited period of time), this could constitute a restriction on the free movement of capital in case the non-resident fund is compared to a FBI, whereas the non-resident fund is not allowed to receive a refund even though its shareholders / participants are equally taxed compared to the shareholders of a FBI.
This ECJ ruling is one in a series of rulings and should shed light on the refund claims made by numerous investment funds in EU jurisdictions. For the Dutch practice, this ruling specifically is interesting and may be considered as yet another step towards a clear precedent. The Dutch re-distribution requirement originally has been introduced to justify that Dutch FBI’s are exempt from Dutch corporate taxation. The requirement however has lost its relevance (at least for individual investors) upon introducing a taxation based upon a fictitious return on investment per FY2001. Per 2001, the factual return on investment no longer is relevant for a Dutch individual’s annual tax liability. The clear ECJ’s instruction for a Dutch court ruling may create an Escher-like puzzle to solve for the judges assigned to the case.