In 2001 “POEM B.V.” was incorporated in the Netherlands under Dutch law by its shareholder X, and has since then been registered in the Dutch trade register. In 2010 its administrative seat was moved to Malta where it was also registered as an ‘Oversea Company’. X was from the Netherlands but moved to Switzerland in 2010. In “POEM B.V.”‘s Maltese tax return for the year 2013, the entire income was registered as ‘Untaxed Account’ and no tax was paid in Malta. “POEM B.V.” distributed dividend to X in FY 2011-2014. Following an audit the Dutch tax authorities issued an assessment where corporate income tax and withholding tax over the dividend had been calculated. The assessment was based on Article 4 (4) of the Dutch-Maltese DTA under which “POEM B.V.” was deemed to be a resident of the Netherlands. Not satisfied with the assessment “POEM B.V.” filed an appeal arguing that it was a resident of Malta (or alternatively Switzerland) and that the Netherlands therefore has no taxing right over the profits or the dividends. Judgement of the Court The Court decided in favour of the tax authorities and upheld the assessment of taxable income in the Netherlands. Excerpts: “5.38. In view of the aforementioned facts and circumstances, taken together and weighed up, the Court sees no evidence to suggest that, in the years in question, core decisions were prepared in substance in Malta and that substantive discussions took place there, let alone to rule that the core decisions were taken there. The interested party has thus failed to rebut the presumption of proof. This leads to the conclusion that the actual management of interested party was exercised from the Netherlands. Interested party was therefore resident in the Netherlands for the purposes of the Netherlands-Malta Convention in the years in question. For that case, it is not in dispute between the parties – rightly so – that the treaty does not impede the Dutch right of taxation and that the tax assessments in question were rightly imposed to that extent.” “5.40. Pursuant to Article 4(1) of the Netherlands-Switzerland Convention 2010, the interested party was a resident of the Netherlands if, under the laws of the Netherlands, she was subject to tax there by reason of her residence, stay, place of management or any other similar circumstance. The second sentence of that provision makes it clear that a person who is subject to tax only in respect of income from sources in the Netherlands is not deemed to be a resident of the Netherlands. For the application of this residence provision, the Court has previously held that in order to be a resident of one of the countries, a person must be fully subject to the tax in that country (‘full tax liability’) (see Court of Appeal of The Hague 24 June 2020, ECLI:NL:GHDHA:2020:1044, r.o. 5.63-5.65). 5.41. By virtue of the residence fiction in Article 2(4) of the Vpb Act, the interested party was a resident of the Netherlands within the meaning of Article 4(1) of the Netherlands-Switzerland Treaty 2010. Having held above in 5.38 that the interested party was a resident of the Netherlands for the purposes of the Netherlands-Malta Convention, the full subjection of the interested party in the Netherlands under Article 4(1) of the Netherlands-Switzerland 2010 Convention is not limited by the application of that Convention.” “5.47. In the opinion of the Court of Appeal, in the face of the substantiated challenge by the Inspector, the interested party, which argued that it is actually managed in a country other than the country in which the formal management sits, has the burden of demonstrating facts and circumstances that justify the conclusion that its actual management is in Switzerland. The mere circumstance that its sole shareholder and co-director resides in Switzerland is insufficient for that purpose – also in view of his varying places of residence (cf. HR 2 July 2021, ECLI:NL:HR:2021:1044, BNB 2021/156). Since the interested party did not put forward anything else to substantiate its claim, the conclusion is that the interested party is a resident of the Netherlands for the purposes of the Netherlands-Switzerland Convention 2010. For that case, it is not in dispute between the parties – rightly so – that the treaty does not impede the Dutch right of taxation and that the tax assessments in question were also rightly imposed to that extent.” Click here for English translation Click here for other translation ...

X S.à.r.l./B.V. filed corporate income tax returns for the year 2012 as a foreign taxpayer, declaring a taxable profit and a taxable amount of nil. No dividend distribution had been declared for income tax purposes Following an audit, the tax authorities included the dividend distribution in the taxable income and tax was levied on the dividend distribution at a rate of 2.5 per cent. In dispute before the Supreme Court was whether the dividend distribution was taxable to the X S.à.r.l./B.V. under Section 17(3) opening words and (b) of the Act. The dispute centred on the questions (i) whether X S.à.r.l./B.V. held the substantial interest in Holding with the main purpose or as one of the main purposes to avoid the levying of income tax or dividend tax on the DGA, and (ii) whether this substantial interest was not part of the business assets of X S.à.r.l./B.V.. Depending on the answers to those questions, the dispute was whether levying corporate income tax on the dividend distribution (a) was prevented by the operation of Directive 2011/96/EU (hereinafter: the Parent-Subsidiary Directive), or (b) was contrary to the freedom of establishment provided for in Article 49 TFEU. Judgement of the Supreme Court The Supreme Court upheld the assessment issued by the tax authorities. Excerpt “When examining whether an arrangement is abusive, it is not sufficient to apply predetermined general criteria. In each specific case, the arrangement in question must be examined as a whole. Automatic application of an anti-abuse measure of general scope without the inspector being required to produce even the slightest evidence or indications of abuse goes beyond what is necessary to prevent abuse (see Eqiom and Enka, paragraph 32). If it is sufficient for the inspector to produce such initial evidence or indications, the taxpayer must be given the opportunity to produce evidence showing the existence of economic reasons for the arrangement (cf. ECJ 20 December 2017, Deister Holding AG and Juhler Holding A/S, joined cases C 504/16 and C 613/16, ECLI:EU:C:2017:1009, para 70). 2.6.6. In applying the scheme, the starting point for the allocation of the burden of proof is that the inspector states the facts and circumstances from which it follows that the subjective condition has been fulfilled, and, in the event of reasoned challenge, makes them plausible (cf. Parliamentary Papers II 2011/12, 33 003, no. 10, p. 94). This principle is in line with Union law (cf. T Danmark judgment, paragraph 117). 2.6.7. When applying Union law, the fulfilment of the subjective condition merely provides a presumption of proof that abuse has occurred. This is confirmed by the T Danmark judgment, paragraph 101. If such a presumption of abuse exists, the taxpayer must be given the opportunity to rebut that presumption. The taxpayer may overcome this presumption by establishing, and if necessary demonstrating, facts indicating that the holding of the substantial interest does not constitute a wholly artificial arrangement unrelated to economic reality. A group of companies may be regarded as a wholly artificial arrangement if, in a group structure involving (a) non-EU resident, underlying shareholder(s) and a company resident in the Netherlands, a body resident within the Union has been interposed in order to avoid the levying of Dutch income or dividend tax, without this EU body or the body’s establishment in the EU Member State having any real significance (cf. Parliamentary Papers II 2011/12, 33 003, no. 3, pp. 105 and 106, and T Danmark judgment, paragraph 100). 2.6.8. The Court did not disregard the foregoing in 2.6.2 to 2.6.7 above. The judgments challenged by ground I do not show an error of law and, as interwoven with valuations of a factual nature, cannot otherwise be examined for correctness by the Supreme Court in the cassation proceedings. Nor are those judgments incomprehensible. For this reason plea I also fails.” Click here for English translation Click here for other translation ...