Dutch Tax Authorities On Dividend Tax Exemptions: Failure To Report Can Result In 100% Tax Penalty

Jimmy Cox - Tax Exemptions

Since January 1, 2018, the withholding tax exemption has been extended. At the same time, a reporting obligation has been introduced for the application of the withholding exemption on dividend paid to a recipient who is not established in the Netherlands. In this blog I discuss the reporting obligation entered when applying the withholding tax exemption based on the following topics:  Declaration of dividend tax ,  Condition for dividend tax exemption ,  Misuse of dividend tax exemption ,  Artificial construction of dividend tax .

Dividend Tax Statement

Within 1 month after the dividend has been paid, the ‘Dividend Tax Declaration’ form drawn up by the Dutch Tax Authorities must state that an application is made of the withholding tax exemption. As a result of this reporting obligation, the Tax and Customs Administration can determine whether the withholding exemption has been correctly applied by the paying company or holding cooperative.

Please note: if no or late notification is made, a default penalty of up to € 5,278 can be imposed or, in the case of intent or gross negligence, even a penalty for offense. Criminal fines can amount to 100% of the tax payable. The question is whether this scheme is EU-proof, but initiating a procedure to find this out is also a costly matter.

The ‘Dividend Tax Declaration’ form must contain the following information:

  • Paying company or holding cooperative
    1. The details of the distributing company or holding cooperative;
    2. The nominal paid-up capital;
    3. The number of shares with voting rights of the withholding agent;
    4. Total amount of exempt dividend payments;
    5. Date of dividend payment;


  • Beneficiary
    1. The name, address and state of establishment of the beneficiary;
    2. Part of the nominal paid-up capital in the distributing company;
    3. Number of voting shares in the distributing company;
    4. Percentage of voting rights in the distributing company;
    5. Report if there is application of article 4, paragraph 9 or 10 of the 1965 Dividend Tax Act (hybrid entities). In the case of hybrid entities, the underlying participants must be stated on the ‘Dividend Tax Declaration’ form instead of the receiving entity.

At the bottom of the ‘Dividend Tax Declaration’ form, the person who has completed the form must declare on behalf of the distributing company that all the conditions from Article 4, paragraphs 2, 3 and 4 of the 1965 dividend tax law have been met.

Conditions For Dividend Tax Exemption

Application of the dividend tax exemption requires that the beneficiary is actually established in 1) a member state of the European Union (EU) or 2) in a country belonging to the European Economic Area (EEA) or 3) a country with which the Netherlands has an has concluded a convention for the avoidance of double taxation with a dividend article. The participation exemption or set-off settlement applies to the benefits that accrue to the beneficiary. Furthermore, there must not be any abuse. Abuse exists if the main objective or one of the main objectives of the structure set up is the avoidance of taxation. Whether there is abuse must be tested by means of the subjective and objective test.

Misuse Of Dividend Tax Exemption

The subjective test assessed at the time of payment as to whether the profit-bearing body owes less dividend tax than the underlying entity (s) would have to pay if the Dutch intermediary / holding cooperative were not placed in the structure. However, misuse of the dividend tax exemption is only assumed if there is an artificial construction according to the cumulative objective test.

Artificial Construction Dividend Tax

The objective test assesses whether the construction or transaction is artificial or not. If the construction is not based on valid business reasons that reflect reality, then there may be an artificial construction. Running a material business in the profit-bearing company is considered to be a valid business reason.

There is also no artificial construction if the revenue-bearing company fulfills a switching function and meets all substance requirements. Here  you can find an overview of the substance requirements that already existed before the introduction of the withholding exemption.

At the same time as the extension of the withholding exemption, two additional requirements have been added. For example, the person entitled to income (direct shareholder or cooperative member) of the Dutch body must have 1. An office space for at least 24 months and 2. The salary criterion (usually € 100,000) must be met. If the beneficiary meets all existing and recently introduced substance requirements, the objective test is met and the withholding exemption can be successfully claimed.

Have a tax question in The Netherlands? Contact Jimmy Cox.



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