On July 18, 2025, the Supreme Court of the Netherlands delivered two significant rulings concerning the application of the domestic anti-abuse provision related to the dividend withholding tax exemption. The judgments provide a more granular framework for assessing whether a foreign holding company is part of an "artificial construction," thereby refining the Dutch interpretation of the general anti-abuse principle under EU law.

The cases focus on the denial of the exemption for dividends paid to Belgian holding companies, ultimately owned by Belgian-resident families. By establishing two key analytical tests—"functional attribution" and "de facto control"—the Court has reinforced the "substance over form" approach that has become a cornerstone of EU tax jurisprudence, particularly following the Court of Justice of the European Union's (CJEU) landmark 2019 "Danish Cases". These rulings signal a move towards a highly specific, fact-based analysis of holding structures, with significant implications for international tax planning.

This article is written by Mario van den Broek ([email protected]) and Dick Brinkhof ([email protected]). Mario and Dick are part of RSM Netherlands Belastingadviseurs, with a specific focus on Tax, Sustainability and Strategy.  

Legal Background: The Dutch Anti-Abuse Provision

The central issue in both cases was the interpretation of Article 4, paragraph 3(c) of the Dutch Dividend Withholding Tax Act 1965 (as of 2018). This provision serves to implement the General Anti-Abuse Rule (GAAR) contained within the EU Parent-Subsidiary Directive. Under this rule, the dividend withholding tax exemption is denied if two cumulative conditions are met:

  1. The Subjective Test: The main purpose, or one of the main purposes, for holding the interest in the Dutch company is to avoid the tax liability of another person.
  2. The Objective Test: The structure is considered an "artificial construction or transaction" that was not established for "valid commercial reasons which reflect economic reality".

The Supreme Court’s task was to clarify how these tests should be applied in practice, aligning the domestic provision with the evolving principles of EU law.

Analysis of the Rulings

While both cases involved Belgian holding companies receiving dividends from a Dutch investment fund, the facts presented two distinct scenarios for the Court to analyze.

Case: The "Functional Attribution" Test for Active Holding Companies

This case concerned a Belgian holding company ([X] N.V.) that was an active enterprise, holding interests in seventeen other companies and engaging in management activities for several of its Belgian participations. The taxpayer argued that its genuine business operations precluded the structure from being deemed artificial.

The Supreme Court disagreed, introducing the "functional attribution" (functionele toerekening) test. It held that the overall business activity of a holding company is not, by itself, decisive. The crucial assessment is whether the specific shareholding that generates the dividend income is functionally connected to the company's material enterprise. The lower court found, and the Supreme Court affirmed, that the Belgian company had no active involvement in the management or operations of the Dutch feeder company; it was a passive investment disconnected from its core business.

The Supreme Court confirmed this approach, stating that it is possible for only specific "steps or parts of such a construction" to be artificial and therefore fall under the scope of the anti-abuse provision. This allows tax authorities to dissect a corporate structure and isolate passive investments within an otherwise active company, marking them as artificial if they lack a sufficient nexus to the main business operations.

Case: The Passive Holding Company and "De Facto Control"

The second case involved a Belgian holding company ([X] B.V.B.A.) with minimal substance. Its main assets were the interest in the Dutch fund and two classic cars; it had no employees or dedicated office space. The company was originally formed for a valid business reason, but had since sold its active participation and now functioned primarily as a passive investment vehicle.

In its analysis of both this case and the first, the Supreme Court introduced a second determinative criterion:  

"de facto control" (feitelijke zeggenschap) over the dividend income. The Court looked beyond the legal form to assess who factually controlled the dividend flows. It concluded that the ultimate shareholders (the Belgian families) retained full control over the decision to reinvest the profits or distribute them. This led to the critical finding that the holding company "cannot freely dispose of the dividends it receives from the BV".

This lack of autonomous decision-making power over its own income was a strong indicator that the holding company was not operating as an independent economic entity but rather as a conduit for its shareholders. The Court noted that in this assessment, it "was also able to attach significance to the circumstance that there is no obligation for the interested party to reinvest all or part of the profits received from the BV". This demonstrates that the absence of a pre-ordained obligation to pass on funds does not preclude a company from being classified as a conduit if, in reality, it lacks independent control over the funds.

Forward Thinking

The Dutch Supreme Court's judgments offer a refined and stringent framework for applying anti-abuse rules, creating several key considerations for multinational enterprises and investment funds:

  • Nexus Between Investment and Business: For active holding companies, it is now crucial to demonstrate a clear functional link between a specific investment and the company's core economic activities. Holding passive investments that are entirely separate from the main business will attract scrutiny.
  • Autonomy in Financial Decisions: Holding companies must be able to prove they exercise genuine, autonomous control over the income they receive. This requires board decisions on the use of funds (reinvestment, operational needs, etc.) to be well-documented and reflect independent business judgment, rather than simply executing the will of the ultimate shareholders.
  • The Burden of Proof: While the tax inspector has the initial burden to provide objective indicators of an artificial arrangement, these rulings show that once such indicators are present (e.g., lack of substance, conduit-like cash flows), the burden effectively shifts to the taxpayer to provide evidence of valid commercial reasons for the structure.
  • Evolution of a Structure: The Court explicitly recognized that a structure initially set up for valid commercial reasons can later become artificial due to a change in circumstances. Companies must therefore continuously review their structures to ensure they remain aligned with economic reality.

These rulings represent a significant step in the domestic implementation of EU anti-abuse principles. By creating clear, operational tests, the Dutch Supreme Court has provided both taxpayers and tax authorities with a more detailed, albeit stricter, roadmap for navigating the complexities of international tax law. The emphasis is unequivocally on demonstrable economic substance and genuine business purpose, a trend that is expected to continue across the European Union.

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