In a decision rendered on March 20 2025, the Amsterdam Court of Appeal ruled on the application of Dutch anti-dividend stripping measures. The court concluded that the taxpayer was engaged in dividend stripping.
Case details
The case involves B BV, a Dutch entity within the C Group, of which D SARL is the parent entity. C Group is an international trading group executing several trading strategies, including one involving Dutch shares and derivates. The dispute centres on the question of whether B BV is entitled to a credit of Dutch dividend withholding tax (DWT) during the period 2012–15 based on Article 25(2) of the Dutch corporate income tax act (CITA).
M NV, a company in the C Group, manages securities and payments across the group by lending out securities from B BV’s portfolio.
B BV acquires shares as a long position financed via M NV and receives a dividend subject to a 15% DWT. M NV lends out these shares to cover third-party short positions, resulting in B BV losing ‘physical control’ of the shares during the dividend period. To solve this problem, D SARL executes an ‘exchange for physical’ (EFP) with a third party, Y, which is not fully entitled to credit DWT:
D SARL buys shares ‘cum dividend’ from Y for €1,000.
Simultaneously, D SARL sells futures to Y for €990 (€900 ex-dividend value + €90 ‘counter performance’), ensuring Y ‘retains economic interest’ post-dividend.
D SARL receives a €100 dividend, on which €15 DWT is withheld, resulting in a €85 net dividend. D SARL attributes this dividend to B BV, enabling B BV to credit the €15 DWT.
D SARL transfers the shares back to Y for €990, completing the EFP.
Legal framework
Article 25(2) of the CITA provides for a credit for Dutch DWT, which is subject to the condition that the relevant taxpayer is the beneficial owner of the income on which DWT has been withheld (i.e., the anti-dividend stripping rule).
A taxpayer cannot be considered the beneficial owner if it has paid a consideration in connection with the proceeds received as part of a series of transactions:
In which the proceeds have, wholly or partly, directly or indirectly, benefited any party that is to a lesser extent entitled to a credit of DWT than the crediting taxpayer; and
The other party directly or indirectly retains a position in shares that is comparable to its share position prior to the moment when the series of transactions started.
The aim and purpose of this article is combating ‘dividend stripping’; i.e., preventing a foreign shareholder, while retaining the economic interest in the relevant shares, from transferring the right to dividends to a party that has a more favourable right to a credit of DWT.
Court decision
B BV argued that a grammatical interpretation of Article 25(2) of the CITA requires that the entity orchestrating the series of transactions is the same entity as the one crediting the DWT. In this case, D SARL, as the ‘face to the market’, orchestrated the transactions, while B BV merely held a long position in the relevant shares and credited the DWT.
The court concluded that in a clear case where a series of related transactions – artificially using a foreign group company (entering into the EFPs) solely to sidestep Article 25(2) of the CITA – conflicts with the aim and purpose of that article, it becomes plausible that the goal was to avoid its application. As a result, the court determined that the interested party cannot rely on the legal certainty it claims from a grammatical interpretation of the article. Instead, interpretation aligned with its aim and purpose should take precedence.
Additionally, the court stated that the counterparties to the transactions were involved in both the selling of the shares to the foreign group company of C and the purchase of the corresponding futures (EFPs), thereby retaining the economic interest in the relevant shares.
The court further concluded that it is plausible that the purchaser of the futures received compensation for the series of transactions in order to credit DWT. Where the price of the futures would in principle be equal to the value of the shares minus 100% of the gross dividend, the EFPs accounted for a reduction ranging from 88–92%. The court stated that the price of the futures implies that the counterparty was not (or to a lesser extent) entitled to credit WHT.
Based on the above, the court ruled that dividend stripping had occurred, and B BV could not credit any DWT. An appeal has been lodged against this ruling with the Supreme Court.
It is to be noted that even if the grammatical interpretation were to be accepted, the fraus legis doctrine might still prohibit this construction.
Key takeaways
This court ruling, beyond its detailed analysis of Article 25(2) of the CITA and the specific facts in the case, highlights the evolving tax landscape over the past decades. While structuring based on a strict grammatical interpretation might have been accepted in the past, the ruling demonstrates that such constructions are now rejected based on the article’s aim and purpose. This further emphasises substance over form as a key consideration in navigating the current international tax landscape.
