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Some of Europe's brightest legal minds look at the tax issues across Europe which could impact multinational businesses.

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Beneficial ownership from a Dutch perspective

In the Netherlands, the term beneficial owner can arguably have two different meanings: a domestic law meaning and a tax treaty law meaning. The domestic law meaning, which is relevant for granting an exemption from, or a reduction or refund of, Dutch dividend withholding tax or a credit for withholding tax charged by certain developing countries, in each case if based on provisions of Dutch domestic law, adopts a to some extent material approach. Pursuant to such an approach, the recipient of a dividend is, without limitation, not considered the beneficial owner of a dividend (and hence not entitled to an exemption, refund or credit) if, essentially, another person that would not have been entitled to an exemption, refund or credit is (economically) able to (partially) benefit from such an exemption, refund or credit as a result of entering into a series of transactions with the (formal) recipient of the dividend that de facto does not result in a change in the economic interest in the shares held by that other person in the company distributing the dividends.

This non-exhaustive negative definition of beneficial owner for Dutch domestic tax law purposes can be distinguished from the meaning attributed to the term beneficial owner under tax treaties concluded by the Netherlands. Based on case law of the Dutch Supreme Court in the 1990s, the beneficial owner term has a rather formal (context-based) meaning under Dutch tax treaties. Pursuant to such a formal meaning, which takes into consideration the then applicable OECD Commentaries, beneficial ownership should be determined on the date on which the dividend is made available to the shareholders. As such, the circumstance that a share or dividend coupon would be transferred between the declaration date and payment date by a person not entitled to a reduced withholding tax rate to a person that is entitled to such a reduction, is not decisive. Instead, it is decisive whether the person holding the dividend coupons on the payment date is able to freely dispose of these dividend coupons and proceeds and does not act as an agent or nominee for someone else.

The different meanings of the term beneficial owner entail that it is conceivable that a person is the beneficial owner of a dividend for the purposes of a Dutch tax treaty while not being the beneficial owner of that same dividend for the Dutch domestic tax law purposes. As such, a person may be denied the Dutch domestic dividend withholding tax exemption because it does not qualify as the beneficial owner of a dividend (implying, in principle, a withholding tax at a rate of 15%) while that same person may claim that it is entitled to a full exemption under a tax treaty because it qualifies as the beneficial owner for treaty purposes. In such an event the tax treaty based exemption would have to be given effect to in light of the superiority of tax treaties within the Dutch legal order vis-à-vis domestic law.

The formal approach of the Dutch Supreme Court with respect to the meaning of the term beneficial owner under Dutch tax treaties dates back to the 1990s. In light of subsequent domestic, EU law and tax treaty developments, it seems debatable whether this formal approach towards the beneficial owner meaning would still apply with respect to Dutch tax treaties, especially those tax treaties concluded after 2001 (the year of introduction of Dutch domestic law meaning of beneficial ownership). Such subsequent developments include, for example, the introduction of the domestic law meaning of beneficial owner (which may be relevant via Article 3(2) OECD Model), the (significant) changes to the OECD Commentaries regarding the term beneficial owner, and the Danish conduit cases. There is, however, no case law of the Dutch Supreme Court that provides indications as to the effect of the subsequent development on its earlier interpretation of the term beneficial ownership. For now, the Dutch Supreme Court's case law thus indicates a formal meaning of the term beneficial owner for the purposes of Dutch tax treaties.


de brauw, beneficial ownership, dutch tax