Also published in Global Tax Weekly, 12 May 2016
A Dutch lower court recently ruled that dividend payments from the Netherlands to South African corporate entities with 10% or more ownership in the company are not subject to Dutch dividend withholding tax. Taxand Netherlands presents an overview of this update.
This announcement means that South African shareholders are in principle entitled to a refund of the unduly Dutch dividend withholding tax paid. An appeal has however been lodged by the Dutch Tax authorities.
The court case exposes an interesting technical issue on the application of Most-Favoured-Nation (MFN) clauses as it reviews the date of entry of the reduced withholding tax rate in the treaties between South Africa and the Netherlands and South Africa and Sweden.
Arguments also exist that a 0% dividend withholding tax rate should apply in the reverse situation (dividend distribution by a company in South Africa to a Dutch shareholder). Please note however that in the view of the South African Revenue Services (SARS) the MFN clause of the Protocol could not avail to a 0% dividend tax rate.
We advise Dutch and South African taxpayers to review whether they have paid dividend withholding tax in recent years and to consider distributing a dividend on a short notice, as the window for the 0% dividend withholding tax rate is expected to be limited.