Anyone withholding dividend tax must also remit it. The argument that the tax is materially not due does not help. The bv should have made that defence by objecting to its own remittance, not by simply omitting the remittance.
International structure
A Dutch limited company is part of an international structure. Through a Luxembourg company, it receives dividends of €300 million. It pays almost all of those dividends to a UK company. On paper, the bv 15% withholds dividend tax: almost €45 million. But it pays nothing. In its tax return, it claims a deduction in the amount of the Luxembourg withholding tax that would weigh on the dividends received. The problem is that that Luxembourg tax was reclaimed in full elsewhere in the structure. On balance, no one paid any tax.
Artificial construction
The inspector investigates and imposes an additional tax assessment of almost €45 million, plus a fine of over €22 million. The bv objects. In previous corporate tax proceedings, the court had already ruled that the bv plays only a service role in a completely artificial structure. The dividends are not part of its profits. Based on that ruling, the court set aside the additional tax assessment. If no real dividends exist, no dividend tax needs to be withheld either.
Court: withheld is withheld
The inspector appeals and is vindicated. The court points out an important distinction. The bv itself decided to pay dividends and withheld dividend tax itself. This is evident from the dividend notes. It follows from the law that whoever withholds dividend tax must also remit it. Even if it turns out afterwards that the withholding was unjustified. As withholding agent, the bv cannot defend itself by arguing that the tax was not materially due. To do so, it should have objected to its own remittance.
No right to reduction
The bv had omitted the remittance by claiming a deduction for foreign withholding tax. But that relief only applies if the foreign tax actually weighs on the dividends received. That is not the case here. The Luxembourg tax was claimed back in the same structure, and internal notes and e-mails show that the directors of the PLC knew this. They deliberately chose to claim the reduction anyway.
Fine remains in place
The court ruled that the bv deliberately underpaid tax. The directors worked closely with the foreign parties and were fully aware of the artificial nature of the structure. They knew that on balance no Luxembourg tax was paid. Nevertheless, they claimed the relief. That the bv was assisted by a tax advisory firm does not make the position moot. The 50% fine is appropriate, even though it is over €22 million.