On 25 April 2013, Advocate General (AG) Wattel of the Dutch Supreme Court (Hoge Raad der Nederlanden) gave his opinion in Case 12/04717 (recently published) on the refund of excessive dividend withholding tax withheld on dividends paid to a Belgian resident. Details of the opinion are summarized below.

(a) Facts. The Taxpayer (X) is a Belgian resident, who in 2007 derived dividends from the Netherlands on which 15% dividend withholding tax was withheld. The taxpayer claimed that:

The tax inspector rejected the taxpayer's arguments.

(b) Legal background. Article 5 of the Dividend Withholding Tax Act (DWTA) provides for a 15% withholding tax on dividends. Dividends received by resident taxpayers can credit the dividend withholding tax with the income tax due. Article 2.13 of the Income Tax Act (ITA) provides that investment income, including dividends, is taxed at the rate of 30%. Article 5.1. of the ITA provides that the tax is imposed on a deemed yield of 4%, which results in a 1.2% tax.

Under Belgian domestic law no credit is granted for foreign dividend withholding tax. Instead, a cost deduction is available equal to the Belgian tax rate of 25% imposed on such dividends.

(c) Issue. The issue was whether the taxpayer was entitled to a full refund of the difference between the 15% withholding tax and the 1.2% income tax, which a Dutch resident has to pay on dividends received.

(d) Opinion. The AG first dealt with the non-discrimination issue and considered that EU law allows that a source state taxes non-residents on a different taxable base than resident taxpayers, but that it is incompatible with EU law for non-resident taxpayers to be taxed differently than resident taxpayers on the same income. The AG noted that the manner of imposition may differ as long as the total tax burden is the same. The AG rejected the argument of the State Secretary for Finance that a non-resident taxpayer, who is subject to a 15% final withholding tax should be compared with a resident taxpayer who also only is subject to a 15% final withholding tax. In addition, the AG rejected the taxpayer's argument that he should be entitled to a full refund of the dividend withholding tax if his dividends are not subject to income tax.

In the AG's view, the final withholding tax burden imposed on a non-resident should be compared with the burden of a resident taxpayer who is subject to income tax and receives a credit for the dividend withholding tax.

The AG considered that EU law does not oblige the Netherlands to compensate the legal double taxation, resulting from the fact that Belgium does not grant a credit but only a cost deduction for foreign dividend withholding tax. However, due to the fact that resident taxpayers, generally, receive a credit for the dividend withholding tax, non-resident taxpayers should also be entitled to the lower tax burden on dividends resulting after a credit from the dividend withholding tax.

Thereafter, the AG observed that the taxpayer is not entitled to the basic exempt amount to which resident taxpayers are entitled under Box III, because he did not derive 90% or more of his income from the Netherlands.

Finally, the AG dealt with the issue whether a full compensation is granted in Belgium for the excessive dividend withholding tax (i.e. the difference between the final dividend withholding tax and the income tax due by a resident taxpayer). This due to the fact that Belgium does not grant a credit for the foreign dividend withholding tax but only a cost deduction. The AG rejected the argument of the State Secretary for Finance that the Belgian cost deduction calculated on the full amount of dividends was higher than the amount of the excessive tax.

The AG opined that the Netherlands should refund the full amount of the excessive withholding tax. The AG considered that only 25% of that amount was compensated by the Belgian cost compensation rule. The AG further considered that the Dutch dividend withholding tax was only partially compensated because a 25% cost deduction is always less than a 100% deduction.