The Dividend Tax and Withholding Tax Expert Group, together with the Expert Group on International Tax Law, Corporate Income Tax & Profits, has published a new position paper on the application of the Dutch dividend withholding tax exemption under Article 4 of the 1965 Dividend Tax Act to dividend payments to an active holding company established in another EU Member State. The position paper (KG:024:2026:2) confirms that failure to meet the formal wage cost requirement of EUR 100,000 does not automatically preclude application of the withholding tax exemption. The decisive question remains whether, having regard to all facts and circumstances, there are valid business reasons that reflect economic reality.

The withholding tax exemption was previously a central issue in Belgian holding company cases (18 July 2025, ECLI:NL:HR:2025:1162 and ECLI:NL:HR:2025:1163). In those cases, the ‘hypothetical scenario’ approach could be used to demonstrate that the intermediate holding company provided a Dutch tax advantage. However, this approach primarily relates to the subjective test: without the intermediate holding company, more Dutch dividend tax would be payable. It does not, in itself, answer the question of whether the intermediate holding company is also an artificial arrangement.

In one of the Belgian cases, whilst there were activities at group level, there was no active involvement in the specific Dutch shareholding. Furthermore, the holding company could not freely dispose of the dividends received. The economic reality thus pointed towards a passive intermediary without a sufficiently independent function. The Dutch Supreme Court confirmed that the assessment must always be made on the basis of all the facts and circumstances, including the holding company’s actual function, its involvement in the shareholding and its control over dividend income.

The subjective condition is also met in the present Expert Group’s position paper: without the EU holding company, more dividend tax would be due. Nevertheless, this does not lead to the exemption being refused. The objective test yields a different result, because the holding company does not merely constitute a passive link in the dividend flow, but fulfils a demonstrable function of its own within the group.

This business function is evident from a coherent set of facts. The holding company has a bank account and keeps its accounts in its own EU Member State. Furthermore, it has office space there, which is made available in return for an arm’s-length fee. The director is employed by the holding company, holds full authority together with the Dutch co-director, and systematically carries out primarily strategic, managerial and financial activities for the holding company. According to the factual investigation, these activities yield a higher return than might normally be expected from asset management. The annual salary of EUR 75,000, despite falling below the EUR 100,000 wage cost requirement, is deemed commercially justified in light of those activities.

Furthermore, under an arm’s-length management agreement, the holding company exercises strategic oversight of the operational activities of the Dutch operating company and the management of its staff. On behalf of the holding company, the director sets the annual budget and financial targets and is responsible for approving the annual accounts.
For these activities, the holding company receives an arm’s-length management fee. It is precisely the actual performance of these activities, the associated decision-making authority and the arm’s-length pricing thereof that constitute genuine added value. The intermediate holding company has therefore not been inserted solely to save on Dutch dividend withholding tax but fulfils an independent function that reflects economic reality. Consequently, this is not an artificial arrangement and the withholding tax exemption may be applied, despite the fact that one of the formal substance requirements — the EUR 100,000 wage cost criterion — has not been met.

The message for practice is clear: it is not simply a matter of ticking the boxes for formal substance requirements, but rather the combination of actual work carried out, decision-making authority, commercial contracts, arm’s-length remuneration and demonstrable value creation that determines whether an EU holding company can apply the withholding tax exemption.

If you have any questions about this blog, please contact Laurence Bos (M: +31 6 47 00 58 06, bos@dayonelegal.nl)