Tax Lawyers / Fiscalisten

Wednesday, 01 March 2017

EJC ruled on application Parent-Subsidiary Directive for Dutch investment institution

Recently the European Court of Justice (“EJC”) ruled that a Dutch fiscal investment institution (Fiscale beleggingsinstelling or “FBI”) is not entitled to invoke the Parent-Subsidiary Directive (90/435/EEG) (“Directive”) as a FBI cannot be qualified as a ‘company of a member state’ based on the ‘subject-to-tax’ clause.

In 1999 and 2000 a Belgium company (“X”) paid a dividend to its Dutch shareholders. The Dutch shareholders were benefiting from the FBI regime. A Dutch FBI is subject to Dutch corporate income tax, but the applicable tax rate is 0%. There are a number of conditions to benefit from the FBI regime. One of the requirements is that the profits of a FBI are distributed to its investors within 8 months after the end of the book year. On the dividends paid by X to the Dutch shareholders, a 5% Belgian withholding tax was applied.

The FBI’s challenged the levy of Belgian withholding tax based on the application of the Directive.

The Directive aims a tax neutral distribution of profits between companies in member states by applying an exemption of withholding tax. To apply this exemption, certain requirement must be fulfilled. One of the requirements is that the recipient falls within the scope of the definition ‘company of a member state’. The Belgium tax authorities argued that companies which are subject to a corporate income tax at a rate of 0% do not fall within the scope of this definition. Thus, the Directive did -in their view- not disallow Belgium to levy a withholding tax on the dividends paid by X to the FBI’s.  

Preliminary questions to the ECJ were raised whether Belgium had correctly applied the Directive.

The European Court of Justice
A ‘subject-to-tax’ clause applies to qualify as a ‘company of a member state’. This subject-to-tax requirement entails two criteria:

  1. the parent company and the subsidiary are subject to a corporate tax in the EU/EEA (positive criterion);
  2. both companies shall not be exempt from any taxation nor benefit from an option with regard to that tax (negative criterion).

The ECJ ruled that although the Dutch FBI is formally subject to corporate tax at a 0% rate and is not exempt from that tax, the effect of a 0% rate is that the FBI is not liable to pay that tax. This effect is equivalent to not being subject to taxation.  

This interpretation is also in line with the objective of the Directive: elimination of double taxation on group dividend distributions. Since the FBI is taxed against 0%, the risk of double taxation does not exist, according to the ECJ.

The ECJ therefore decided that Belgium has correctly applied the Directive by excluding the Dutch FBI’s from the application of the Directive. Thus, Belgium was allowed to levy a withholding tax on dividends to the FBI shareholders.  

The decision of the ECJ provides clarity with respect to the ‘subject-to-tax’ condition to apply the Directive.

Some authors argue that FBI could benefit from the Directive since the FBI is formally subject to taxation and not exempt. The ECJ now made clear that based on the object and meaning of the Directive, the FBI cannot apply the Directive.

The impact for Dutch tax law seems limited since Dutch domestic law is already in line with this decision. This means that:

  1. a FBI cannot invoke the participation exemption; and
  2. the exemption from dividend withholding tax in EU context does not apply to FBI’s.

However, this outcome does not mean that all distribution to FBI’s should be subject to withholding tax. Based on the European freedoms, there may be an argument to apply an exemption of withholding tax in specific cases.



Weteringschans 24, 1017 SG Amsterdam
T +31 20 535 4567



Emmasingel 33-35, 5611 AZ Eindhoven
T +31 40 303 5200