Proposed Conditional Withholding Tax on Dividend Payments
In a previous article, we wrote about the new Dutch withholding tax on interest and royalty payments which was introduced on 1 January 2021. It was mentioned that the Dutch government is also considering including dividend payments under the scope of this legislation. On 25 March 2021, the Dutch government published a legislative proposal introducing this new tax on dividend payments.
If the proposal is implemented, dividend payments to associated companies that are tax resident of low-tax jurisdictions or non-cooperative jurisdictions will be subject to a Dutch withholding tax at a rate of 25% from 1 January 2024 onwards. This conditional dividend withholding tax will also apply to abusive situations.
Current dividend withholding tax in the Netherlands
Contrary to interest and royalty payments, on which the Netherlands did not levy withholding tax before 2021, the Netherlands already has a withholding tax on dividends in place. This means that, if this legislative proposal is implemented, the Netherlands will have two different withholding taxes on dividends as per 2024.
Why a new withholding tax on dividends?
In the legislative proposal, it is mentioned that the reason for introducing a new (additional) withholding tax on dividends is to target two specific situations:
- Dividend payments by Dutch companies to associated companies in low-tax jurisdictions or non-cooperative jurisdictions that have concluded a double tax treaty with the Netherlands and therefore might be currently exempt under the Dutch dividend withholding tax exemption;
- Dividend payments by Dutch non-holding cooperatives to associated companies in low-tax jurisdictions’ or non-cooperative jurisdictions.
Under the current dividend withholding tax act, dividend payments by Dutch non-holding cooperatives are not subject to withholding tax. This will change if the proposal is implemented.
Preventing double dividend taxation
The situation could arise where both the current dividend withholding tax and the proposed conditional withholding tax are applicable. This could be the case in situations where there is no tax treaty in place. The proposal therefore includes a concurrence provision in order to prevent double taxation.
Assess all intercompany dividend payments from the Netherlands
Does your company pay dividends to associated companies in low-tax or non-cooperative jurisdictions? We recommend you assess all intercompany dividend payments from the Netherlands to those companies. It is also recommended to assess whether any group structures can be considered abusive situations under this newly proposed tax legislation.
If you have any questions about the new Dutch conditional withholding tax on dividends and how it might impact you, feel free to contact the specialists at Crowe Peak.