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Dutch Court reaffirms 25% tax credit for Brazilian equity interest

Dutch district court again allows 25 % tax sparing credit on Brazilian interest on net equity

At the end of last year (on 8 December 2023) a Dutch district court (the “Court”) ruled again that “interest on net equity” (“IoNE”) constitutes dividend under the tax treaty between Brazil and the Netherlands (the “Treaty”). That, according to the Court, means that the Dutch taxpayer rightfully claimed the 25% dividend tax sparring credit on the IoNE (instead of the 20% credit that applies to interest).

Court’s ruling in view May 2023 ruling

The facts of the Court’s ruling are almost identical to the case the same Court handled in May 2023 (see our previous newsflash). In both cases, the Dutch taxpayer owned (nearly) all shares of a Brazilian subsidiary company and received a IoNE payment in 2018. In both cases, the Dutch taxpayer argued that the IoNE should be considered a dividend, and it therefore was entitled to a tax sparing credit of 25% (based on article 23-4-a of the Treaty). The Dutch tax authorities (the “DTA”) were of the view that the payment on the IoNE should be seen as interest and that the Dutch taxpayer therefore was entitled to only a 20% credit (under article 23-4-b of the Treaty). In both cases, the DTA based their position on (i) a Dutch policy Decree of 2020 [1] in which the DTA considers IoNE as interest for treaty purposes and (ii) agreement reached in the scope of a Mutual Agreement Procedure in 2022 with the Brazil competent authorities on the qualification of IoNE as interest under the Treaty (the “MAP Decision”). [2]

The Court, in contrast, ruled that there is sufficient evidence to consider IoNE as dividend under the Treaty and that any uncertainty on the interpretation of the wording of the Treaty is for the risk and account of the contracting states and that such uncertainty cannot be applied to the determent of the taxpayer. The Court did take into account the MAP Decision, but considered it less relevant because the uncertainty on the Treaty interpretation in any case still existed in 2018 (i.e., the MAP Decision was reached in 2022).
We note that the DTA lodged an appeal against the Court’s ruling of May 2023. As far as we are aware this appeal is still pending.

An interesting question is whether the Court would have ruled differently for Dutch tax returns filed after the date of the MAP Decision.


With both Court rulings in mind, as well as prior case-law of the Dutch Supreme Court, [3] Dutch taxpayers have a “reportable position” (in Dutch: ‘pleitbaar standpunt’) when claiming a tax sparing credit of 25 % for IoNE (from Brazilian subsidiary companies) in their corporate income tax returns. This means that – pending further case law – Dutch taxpayers should be protected from penalties, levied on an increased amount of tax due, if the position would ultimately be reversed by the Dutch courts. Where taxpayers have applied the interest tax sparing credit of 20 % and the final assessment has not yet been imposed, it may be worthwhile to file an objection letter.

[1]           Decree of 4 August 2020, no. 2020-14853.

[2]           Decision of 4 April 2022, no. 2022-8330

[3]           ECLI:NL:HR:1999:AA2898.

Ivo Kuipers


Taco Wiertsema


Eli van Exel

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