France & The Netherlands: Foreign insurance companies and Dutch WHT on dividends – recent CJEU judgement C-782/22

Introduction

On 7 November 2024, the European Court of Justice (CJEU) issued a judgment (XX, C-782/22) regarding the levy of dividend withholding tax (DWT) on foreign insurance companies in light of the European free movement of capital.

The CJEU ruled that the different treatment in the Netherlands of resident and non-resident companies constitutes an unjustified restriction of the free movement of capital if there exists a direct link between dividends received and an increase in obligations to clients. In case the national court decides that there is indeed an unjustified restriction, this could allow non-Dutch residents to claim refunds of Dutch DWT.

The judgment

XX is a UK-based life insurance company whose primary clients are institutional pension insurance companies and employers. XX’s business model involves investing premiums paid and issuing ‘units’ linked to these investments. When the clients are entitled to payments, they receive the fair market value at that time of the units issued to them.

As part of its activities, XX receives dividends from Dutch investments which are subject to 15% Dutch DWT on a gross basis. If XX were established in the Netherlands, it could offset the DWT against its Dutch corporate income tax (CIT) due. If the CIT due were lower than the DWT already paid, XX could claim a refund for the excess DWT. Based on XX’s business model, the effective CIT on the dividends in the Netherlands would have been zero, as the dividend income corresponds to an increase in the obligations to its clients based on the issued units. Therefore, the DWT would have been fully refunded if XX were a Dutch tax resident. Since XX is a tax resident of the United Kingdom, this refund is not possible.

XX appealed to the CJEU that this treatment violates the European free movement of capital. The CJEU honors the appeal in case there is a direct link between the dividend income and the increase in obligations to its clients (see below). 

Firstly, the CJEU cited its earlier case (College Pension Plan of British Columbia, C-641/17) by mentioning that foreign pension funds, that use incoming dividends to contribute to the provision of the pensions, are comparable to domestic pension funds that use the same system. While XX is not a pension fund, the CJEU observed that its business model and the resulting financial obligations to its clients are both equivalent and comparable to those of such a pension fund.

Secondly, the CJEU ruled in another case (Miljoen, C-17/14) that, when comparing the tax burden on dividends between residents and non-residents, only expenses that are directly linked to the actual payment must be taken into account. It is up to the national court to decide whether such a direct link exists.

Dutch Tax perspective

From a Dutch perspective, this judgment of the CJEU offers a valuable clarification on the tax treatment of Dutch non-resident companies operating in the financial services sector. We do expect the national court to confirm that the difference in treatment in this case is unjustified. If so, this decision could allow non-Dutch entities, whether based in the EU or outside of it, with business models where dividend income corresponds with financial obligations to clients, to claim refunds of Dutch DWT.

If you think this might apply in your situation, we recommend filing a refund request with the Dutch Tax Authorities. This request has to be filed within three years after the end of the financial year in which the dividend has been declared. Feel free to contact us for any assistance or questions.

French Tax perspective

From a French perspective, this decision comes as no surprise.

The French Supreme Court has already ruled on this point in a judgment issued on 11 May, 2021 concerning a UK life insurance company offering unit-linked policies (CE 5/11/2021 n°438135, UBS Asset Management Life Ltd), similarly to XX in the Dutch case above. French law was even amended in 2022 and now explicitly provides for the possibility for a non-resident to claim a refund of the WHT assessed on the gross income in order to take account of the acquisition and conservation charges directly linked to the dividends and which would have been deductible if the beneficiary had been located in France.

The question that arises now, is whether this case law applies only to unit-linked policies, or whether it may be extended to other scenarios involving life insurance?

One might think so. This is actually already the position in France: the French Court of appeal of Versailles, in a case defended by FIDAL, has already ruled last year on the situation of contracts that are not unit-linked policies but are based on the yield of “contractual funds” (see the #28–2023 of March 2023 WTS infoletter ; CAA of Versailles, 2/09/2023, 20VE01438, Bipiemme Vita S.p.A). In this case, an Italian life insurance company which offered ‘gestione separata’ policies obtained reimbursement of most of the WHT it had borne on French-source dividends, the court having ruled that there was a discrimination between this company and a French company having the same kind of commitment with its policyholders.

We are currently assisting several European insurance companies in the same situation. As a reminder, the deadline for claiming French-source dividends having suffered WHT in year N runs until December 31, N+2.

For more information on the services WTS Global offers regarding EU WHT reclaims we refer to: EU WHT reclaims | WTS Global.