Anti-Abuse Rule Clarified by the Dutch Supreme Court: Insights from Decisions in April and July 2025
Dutch Supreme Court Strengthens Crackdown on Tax Avoidance by Personal Holding Companies
In a series of landmark rulings, the Dutch Supreme Court has tightened its scrutiny of cross-border investment structures, particularly personal and family holding companies, to prevent tax avoidance. The rulings, issued on 25th April and 18th July 2025, emphasize the importance of actual economic substance and genuine business activity in holding entities to benefit from Dutch dividend withholding tax exemptions.
On 25th April, the court ruled on the application of the anti-abuse provisions in the Dutch Corporate Income Tax Act 1969 (CITA) and the Dutch Dividend Withholding Tax Act 1965 (DWTA). The rulings, which align with EU law and CJEU case law, emphasize a substance-over-form approach in assessing tax abuse.
According to the rulings, an arrangement or any part of it can be deemed artificial if it lacks sufficient economic or commercial justification beyond obtaining the tax benefit. The burden of demonstrating abuse lies with the tax authorities, while taxpayers may rebut by showing valid business reasons. Structures initially set up for genuine business reasons may later become artificial if circumstances change, such as a holding company originally having substance losing it over time or through certain transactions.
In one case, BVBA, a Belgian holding company for three family members, held a 38.71 percent interest in a Dutch feeder company but lacked substance and did not justify its existence beyond pooling investments. Another case involved a Belgian NV managing investments for a Belgian family, where the Supreme Court denied the application of the dividend withholding tax exemption, reasoning that the NV's interest in the feeder company was not functionally linked to its material enterprise.
The rulings also underscore the significance of ultimate control and beneficial ownership, noting that where the ultimate family ultimate beneficial owners (UBOs) retain decision-making power over dividends rather than the holding company, the structure may be considered a mere conduit, thus raising abuse concerns. Intragroup management or shared service arrangements can undermine the substance of a holding company, an important consideration for multinational groups with centralized functions.
In the July rulings, the court considered dividends paid by a Dutch 'feeder company' to two Belgian companies and the application of the Dutch dividend withholding tax exemption. The Dutch tax authorities sought to tax the dividend under the anti-abuse rule, but the Supreme Court confirmed that the Court of Appeal's ruling that there was no tax abuse in the case. The Amsterdam Court of Appeal had ruled that abuse was present in both cases, and the Supreme Court upheld these decisions.
The rulings underscore that the assessment of whether a structure is abusive must consider its entire lifecycle - not just the moment it was established or the dividend is distributed. Active management and control with regard to participations are important to ensure that the shareholding is functionally linked to the enterprise's assets. The presence of a material enterprise does not preclude abuse, unless the shareholding is functionally linked to that enterprise.
These rulings signal a more rigorous and holistic evaluation of cross-border investment structures, requiring actual economic substance and genuine business activity in holding entities to benefit from Dutch dividend withholding tax exemptions. Structures primarily designed or maintained for tax avoidance are increasingly vulnerable to denial of such benefits.
In light of the recent rulings, it's evident that the Dutch Supreme Court is strengthening its focus on finance and business within personal and family holding companies to combat tax avoidance. The rulings highlight the importance of these entities demonstrating actual economic substance and genuine business activity to qualify for Dutch dividend withholding tax exemptions.
