Supreme Court rules on interpretation of anti-avoidance rule related to dividend withholding tax exemption in Belgian holding structures

Anti-avoidance rule related to withholding exemption

The dividend withholding tax exemption includes an anti-avoidance rule to prevent a group from reducing the tax burden on dividends. Such reduction is effected by interposing a foreign company in a Dutch company’s shareholding structure, which foreign company is entitled to an exemption or lower rate but has no economic function (art. 4(3)(c) Dividend Withholding Tax Act 1965). The application of the anti avoidance rule is subject to two conditions. First, the main purpose or one of the main purposes to hold the interest in the Dutch company is to avoid the levy of dividend withholding tax on another party (subjective test). Secondly, it is required that the arrangement is artificial (objective test). On 18 July 2025, the Supreme Court pronounced judgment on the interpretation of this anti-avoidance rule in two related cases.

Belgian personal holding companies

These cases involved a structure in which Belgian-based holding companies (X NV and X BVBA, respectively) held an interest in a Dutch BV (A BV). X NV also held various other interests and acquired and disposed of participations that directly or indirectly carried on a business. The shares of X NV were held by two Belgian companies, which were subsequently held by several natural persons who resided in Belgium and who were part of the same family. The shares of X BVBA were held directly, by family members residing in Belgium. X BVBA had no substance, while X NV did.

In 2018, A BV paid a dividend on which 5% dividend withholding tax was withheld, in accordance with the dividend article in the Belgium Netherlands tax treaty. Both X NV and X BVBA filed a notice of objection regarding the dividend withholding tax being withheld. The dispute is about whether the withholding is justified, or whether the withholding exemption of Article 4(2) of the Dividend Withholding Tax Act 1965 can be invoked. In this respect it is of particular importance whether the aforementioned anti-avoidance rule applies here.

Background: abuse according to Amsterdam Court of Appeal

The Amsterdam Court of Appeal ruled on these cases in 2022. In respect of the subjective test, the Court of Appeal went along with the Tax Inspector’s view that the (ultimate) shareholders in the structure are natural persons who would not be able to invoke the withholding exemption without using the Belgian holding companies. The Court argued that the other circumstances put forward by the interested parties for setting up the structure (such as limiting the liability and pooling investments) do not alter the fact that avoiding dividend withholding tax was one of the main purposes.

In respect of the objective test, the Court considered it decisive that despite the presence of an actual business at the level of X NV, the shareholding in A BV is not functionally attributable to that actual business. What’s more, the Court explicitly noted that the mere fact that X NV carried on an actual business does not by definition rule out any abuse. At the level of X BVBA, there was no actual business at all. Now that the Court argued that both the subjective and objective test has been met, the opinion is that neither X NV nor X BVBA is entitled to application of the withholding exemption.

Supreme Court considerations

The Supreme Court opened its opinion by stating that the anti-avoidance rule of the withholding exemption implements the general anti-avoidance rule contained in the Parent-Subsidiary Directive (hereinafter: PSD). It must thus also align with the anti-avoidance rules under Union law. Thus, Article 4(3)(c) of the Dividend Withholding Tax Act 1965 must be interpreted and applied in the light of the PSD and the case law of the Court of Justice of the EU (‘CJEU’) on abuse of rights.

In interpreting the subsequent anti-avoidance test, the Supreme Court explicitly referred to its interpretation of this test in the judgments it pronounced earlier this year, regarding the anti avoidance rule for the non-resident tax liability for entities with a substantial interest in a Dutch entity (Article 17(3)(b) of the Corporate Income Tax Act 1969). This is comparable to Article 4(3)(c) of the Dutch Dividend Tax Act 1965. In this earlier case law (case number 22/04506), the Supreme Court provided guidance on, inter alia, the presence of abuse and, more specifically, when an entity qualifies as a so-called conduit company. As part of this, one of the Supreme Court’s statements was that the look-through approach within the subjective test ‘may constitute such an indication’.

To the test framework ensuing from the earlier abuse, the Supreme Court adds the following. If an arrangement has initially been set up for business reasons, it cannot be excluded that it contains steps that must nevertheless be considered artificial. In addition to this, the question whether it involves a group that qualifies as an artificial arrangement cannot solely be answered by considering the facts and circumstances at the time the arrangement was set up. Indeed, while an arrangement may not have been artificial when it was set up, it may become so if the arrangement was maintained despite a change in circumstances, or because artificial components were added to the structure. In short: facts and circumstances arising subsequent to setting up a structure must also be taken into account in the artificiality test. In doing so, the Supreme Court has closely aligned with the CJEU’s recent Nordcurrent judgment (see our earlier reporting on this issue).

Based on the above test framework, the Supreme Court considered that the present case includes both the subjective and objective elements of the EU anti-avoidance test. In this, the Supreme Court followed the opinions of the Court of Appeal, with the Supreme Court, too, explicitly stating that the mere circumstance that X NV conducts an actual business does not automatically lead to the conclusion that there cannot be any abuse. On the contrary, the Supreme Court also established that the decisive factor is whether the participation in A BV is functionally attributable to the shareholder’s actual business. The latter is not the case, argued the Court of Appeal. Hence, the conclusion is that the Supreme Court upholds the Court’s rulings and considering the presence of abuse there is no right to apply the withholding exemption.

Sources:

• Supreme Court 18 July 2025, 22/02691, ECLI:NL:HR:2025:1162
• Supreme Court 18 July 2025, 22/02695, ECLI:NL:HR:2025:1163