Prior to the payment of dividends by Husky Energy Inc. to its shareholders in 2003, two of its shareholders (companies resident in Barbados) transferred their shares to companies in Luxembourg under securities lending arrangements, and therefore Husky Energy Inc. only withheld dividend tax at a reduced rate of 5% under the Canada-Luxembourg Income Tax Treaty. Judgment of the Court The Court found Husky Energy liable for failing to withhold dividend tax at the non-Convention rate of 25%. As the dividends were not paid to the Barbados companies, the 15% rate under the Canada – Barbados Income Tax Convention was not available. The Canada-Luxembourg Income Tax Convention rate was also not available as the Luxembourg companies were not the beneficial owners of the dividends as they were required to pay compensation to the Barbados companies equal to the dividends received. Excerpts “Under the securities lending arrangements, companies resident in Luxembourg enjoyed nothing more than temporary custodianship of the funds received in payment of the Dividends. The compensation payments were preordained by the terms of the borrowing requests, and this preordination ensured that at all times, the Barbcos retained their rights to the full economic value of the Dividends.” “For the foregoing reasons, HWEI and LF Luxembourg were not the beneficial owners of the Dividends for the purposes of Article 10(2) because they were legally obligated from the outset of the securities lending arrangements to return the full amount of the Dividends to the Barbcos in the form of the compensation payments. This was to occur no later than approximately seven weeks after the commencement of the securities lending arrangements. Consequently, HWEI and LF Luxembourg were not entitled to the benefit of the reduced rates of Part XIII tax provided under Article 10(2) and, for the purposes of subsections 215(1) and (6), the amount of tax under Part XIII that Husky was required to withhold and remit in respect of the Dividends was 25% of the Dividends.” “The fact that the Barbcos transferred their common shares in Husky to the Luxcos under atypical securities lending arrangements really has no bearing on whether the Transactions abuse Article 10(2). The rationale of Article 10(2) is to provide relief from double taxation by allocating the right to tax dividends between Canada and Luxembourg in accordance with the theory of economic allegiance while retaining the protections against the use of conduit‐type arrangements afforded by the beneficial owner requirement and the voting power requirement. Consistent with the theory of economic allegiance described by the majority in Alta Energy, which recognizes that a recipient of passive income need not have any allegiance to the paying country, the focus of the rationale of Article 10(2) is not how the common shares of Husky came to be owned by the Luxcos, but whether the Luxcos satisfy the residence requirement, the beneficial owner requirement and the voting power requirement. Since the hypothetical being considered assumes these requirements have been satisfied, I see no basis on which to find that the securities lending arrangements abused Article 10(2). VII. Conclusion For the foregoing reasons, the appeal of Husky is dismissed with costs to the Respondent, and the appeals of HWLH and LFMI are allowed with costs to HWLH and LFMI and the HWLH Assessment and the LFMI Assessment are vacated. While this is an unusual result, it flows from the fact that the Minister assessed the successors of the Barbcos and did not assess the Luxcos.” Click here for translations ...

The interested party bought AEX-listed shares, sold three-month futures based on those shares through its shareholder/broker [D], and lent the shares to [D] (stock lending). It received cash collateral ($ deposits as collateral) and a stock lending fee for its lending. According to the interested party, the shares always briefly reverted to its ownership around their dividend dates through registration in the interested party’s securities account with the French custodian bank on the basis of legal transactions between its shareholder [D] and it, represented by [D]. In dispute is the question whether the interested party is entitled to a set-off of € 39,249,246 in Dutch dividend tax withheld from the dividends on the shares lent by her. Did she receive the dividends (was she the beneficial owner?) and if so, was she also the ultimate beneficiary of the dividend? Also in dispute is whether the Inspector rightly imposed an information decision and thus a reversal and increase of the burden of proof on her for the years 2009/2010, 2011/2012 and 2012/2013 due to a breach of her administration or retention obligation. The Amsterdam Court of Appeal has deemed it decisive for the right of set-off whether (i) the interested party was the legal owner of the shares at the time of the dividend distribution and (ii) she was also the beneficial owner of the dividend as referred to in Article 25(2)(1st sentence) of the Dutch Corporate Income Tax Act. The Court of Appeal concluded that the interested party had not made it plausible that she was the legal owner and therefore entitled to the proceeds, and alternatively held that she was not the beneficial owner either. According to the Court of Appeal, the interested party did not comply with its obligation to keep records and accounts because, among other things, crucial transaction data was missing from its administration. As a result, it cannot be determined whether the legal transactions alleged by the party have been carried out by it or on its behalf, the Court of Appeal considers the shortcomings of such importance that reversal of the burden of proof is not disproportionate. A-G Wattel believes that the Court of Appeal’s criterion for entitlement to proceeds (whether the interested party was the legal owner of the shares) is not entirely correct. What matters is who is entitled to the proceeds (the dividends), not who is a shareholder. Furthermore, given the fact that according to private international law, the question who is entitled to the dividend is not governed by the law of the country where the shares are administered (in this case France), but by the law of the country of incorporation of the company (in this case the Netherlands), the question of cale ownership is of little relevance and the French law invoked by the interested party is not relevant. According to A-G Wattel, the Court of Appeal’s findings of fact and evidentiary rulings imply that also based on the correct standard (entitlement to yield / basis of inclusion) the interested party, on whom the burden of proof rests, has not made it plausible that she was the direct recipient of the dividend and that (therefore) the dividends (and not something substituting or different) were included in her profit. Based on the very extensive and meticulous investigation of the facts and the many relevant documents, the A-G considers this opinion of the Court of Appeal understandable and (amply) substantiated. The main ground of appeal about ultimate entitlement is not discussed, but for the sake of completeness the A-G discusses the judgment of the Court of Appeal about ultimate entitlement and its division of the burden of proof. He considers it unclear which standard the Court of Appeal uses for the interpretation of (not) ‘ultimately entitled’. The Court of Appeal does not visibly follow the three objective criteria in Section 25(2) of the Corporate Income Tax Act, apparently assuming on the basis of the legislative history that the statutory negative description of beneficial owner does not intend to exclude that in other cases beneficial ownership is deemed to be absent. A-G Wattel considers this to be correct in itself, but the criterion for those other than the statutory cases would then have to be made explicit. However, the Court does not visibly follow the Market maker judgment or the official OECD commentary either. Moreover, the burden of proof in this question lies reversed, with the Inspector, but the Court of Appeal bases its subsidiary opinion that the interested party was not ultimately entitled on the same factual judgments and considerations as its primary opinion. If the Supreme Court is allowed to address this ground, A-G Wattel considers it well-founded as far as it complains about an incorrect distribution of the burden of proof and perhaps also as far as it complains about an incorrect standard, since the Court’s standard for ultimate entitlement is unclear. With regard to the information decision, Advocate General Wattel considers that the Court’s judgment that the tax authorities should not be lacking in the applicant’s records is neither incomprehensible nor insufficiently reasoned. In his opinion, the Court of Appeal could also decide, without violating the law or its obligation to state reasons, that the reversal and increase of the burden of proof is not disproportionate to the established facts, given the nature of the business of the interested party’s group and the very large tax interest. He noted that the interested party had little interest in this plea, since it could raise the justification for the information decision and the proportionality of a reversal of the burden of proof linked to it again in the proceedings concerning the VAT assessments for the relevant financial years. He did consider the complaint that the Court, in violation of Section 27e(2) AWR, did not give the interested party a term to remedy the administrative shortcomings to be well-founded. In his opinion, the case should be referred to the Court in order to assess whether rectification is still possible from ...