On April 25, 2025, the Dutch Supreme Court (Court) handed down a verdict connected with interpreting the anti-tax-avoidance rule in article 17 3 b of the Dutch corporate income tax Act (tax year 2016). The Court interpreted this rule in accordance with the explanation of EU anti-abuse provided by European Court of Justice (ECJ) rules. The Court concluded that the foreign holding company provided sufficient evidence that it had not been interposed in the holding structure with the intention to avoid Dutch tax on its dividends.

Background of the case

The case concerned a Dutch individual (X) who, since 2007, had owned all the shares in a Dutch personal holding company (H BV) that, in turn, owned shares in a Dutch operational company (D BV).

In 2011, a Dutch holding company (C BV) was interposed between H BV (and other family holding companies) and D BV, with the aim of selling 85 percent of the shares in D BV to a third party. Thereafter, C BV owned 15 percent of the shares in D BV.

At the end of 2011, X moved his tax residency—as well as the tax residency of H BV—from the Netherlands to Curaçao. The reason for this was the individual’s wish to live closer to family, which had already been resident in Curaçao for a number of years.

At the end of 2015, the interposed Dutch holding company, C BV, sold the remaining 15 percent stake in D BV to a third party.

Early in 2016, C BV distributed the proceeds from this sale as a dividend to H BV in Curaçao. At the time of the distribution, H BV did not carry out any business and had no employees or office in Curaçao. H BV did not pay out these dividend proceeds to the individual in 2016.

Up to the end of 2015, dividend distributions by a Dutch company like C BV were subject to 15 percent Dutch tax. At the beginning of 2016, the Tax Agreement for the Kingdom of the Netherlands (Tax Agreement) was amended with the result that C BV’s dividend distribution to H BV was exempt from Dutch tax, except in the event of abuse of law.

Relevant Dutch tax legislation

A non-resident company like H BV that owns 5 percent or more in a Dutch company like C BV is not subject to Dutch corporate income tax with respect to dividends and capital gains derived from that shareholding, unless the following two conditions are met:

1. (One of) the main purpose(s) of interposing H BV was to avoid Dutch personal income tax or Dutch dividend tax that would have otherwise been due; and
2. H BV is an artificial arrangement—meaning that it was not established for valid commercial reasons that reflect economic reality.

Dutch Supreme Court judgment

The tax inspector imposed a Dutch corporate income tax assessment 2016 on H BV with respect to the dividend from C BV. H BV objected to this Dutch corporate income tax assessment.

The Court of Appeal ruled that there was no abuse and that the 2016 corporate income tax assessment had to be cancelled, because H BV moved to Curaçao along with its sole shareholder, X, who had a personal motive; moreover, X and H BV could not have known in 2011 that the Tax Agreement would eventually be changed in a tax beneficial manner.

The Court confirmed the verdict of the Court of Appeal. Because the Netherlands had implemented the EU Parent Subsidiary Directive general anti-abuse rule in article 17 3 b of the Dutch Corporate Income Tax Act, and said that it wanted to cover all cases (not only EU), the Court interpreted the domestic anti-abuse rule in accordance with EU case law (we refer to our Alerts regarding the Danish cases here and the Nordcurrent case here).

In cases of abuse of EU law, the tax inspector must provide evidence that there may be a tax avoidance motive and that the structure seems artificial. If the tax inspector succeeds, the taxpayer must have the opportunity to provide evidence to the contrary. When determining abuse of EU law, all facts and circumstances must be taken into account, not only those at the date of the dividend.

In the case at hand, the holding structure resulted in a lower Dutch tax burden for X, and H BV did not have material substance (i.e. no business, employees or office). However, at the time the holding structure was established, it was common for Dutch individuals to own their operational company via a personal holding company, and at the date of the change in tax residency to Curaçao, in 2011, X and H BV could not have foreseen that the Tax Agreement would change in 2016 in a manner that would be beneficial for them.

Our observations

The Dutch legislator initially chose to implement the EU Parent Subsidiary General Anti-Avoidance Rule (GAAR) solely in article 17 3 b of the Dutch Corporate Income Tax Act, and not in the Dividend Withholding Tax Act. Therefore, the tax inspector was obliged to combat the potential abuse by imposing a corporate income tax assessment in 2016 (and 2017). As from 2018, avoidance of dividend tax can be challenged via the Dividend Tax Act.

The Supreme Court confirms two tests, the tax avoidance motive test and the artificial arrangement test, which jointly form the subjective test according to the ECJ. According to the ECJ doctrine, it then needs still to be assessed whether applying the benefit would be contrary to the objective of the Tax Agreement. In our view, this is unlikely having regard to the facts and circumstances of the case at hand.