Dividend income in general is taxed in Belgium at a fixed rate of 27% (from 2016 onwards). Belgian resident tax payers earn a net dividend income of 73% in case they are only subject to the Belgian dividend tax.
In case they earn dividends from a Dutch source, an additional tax of 15% is withheld in The Netherlands. Although this tax is deductible from the Belgian taxable base and thus slightly reduces the Belgian tax due, a substantial after-tax disadvantage remains for the tax payer. The Dutch taxes come on top of the Belgian taxes, that have substantially been increased during recent years up to the current level of 27%. In line with these increasing taxes, tax payers are looking for new ways to reduce the overall taxation on their investments.
In my article of 13 January 2014, I already discussed the issue, but at that time the outcome was not yet very clear. Initially, tax payers have been challenging the tax authorities in their country of residence in order to recover foreign withholdings in their residence state. They were, however, unsuccessful and have shifted the discussion to the taxes in the country where the source of the income is located. This new approach is bearing results. Indeed, on 17 September 2015 the European Court of Justice has issued a decision, that is favorable for the tax payers.
The Dutch 15% tax is withheld at source by the company, that is paying out the dividend. For Dutch tax residents, this withholding is not the final tax due. The final tax is calculated upon the filing of the Dutch income tax return (Box III type income) and in case taxes were overpaid at source, they are refunded to the tax payer.
Tax payers, who live outside The Netherlands can most often not deduct the Dutch withholdings from the taxes paid in their country of residence, and consequently may be subject to international double taxation. They can now possibly recover some tax that has been withheld at source in The Netherlands.
The decision of the European Court of Justice may enable them to make a calculation of the tax that would have been due on the Dutch shares in case they would have been tax residents of The Netherlands. In this process, they can also claim a standard deduction and also deduct certain Dutch liabilities from the taxable basis and then calculate the Dutch taxes, based on the normal Dutch tax rules.
To the extent that the Dutch withholdings exceed the recalculated Dutch taxes, a refund can be claimed in The Netherlands. For the Dutch authorities this does not yet close the case, as The Netherlands may now need to change the tax legislation in order to align it with European case law.