S.Africa/Netherlands DTA judgment translated by Google – Court judgment: Dutch DWT tax to South Africa reduced from 5 to 0{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} under most favourite nation clause.
- Instance
- Court Zeeland West Brabant
- Date of judgment
- 29-10-2015
- Publication date
- 26-11-2015
- Case Number
- AWB – 15 _ 395
- Jurisdictions
- Tax Law
- Special characteristics
- First instance – multiple
- Content Display
-
Dividend tax (MFN clause).
Interested party is established in South Africa and holds all the shares in a Netherlands BV. To interested dividend is made available, in which 5{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} withholding tax is deducted. The court ruled that the MFN provision in the tax treaty between the Netherlands and South Africa means that the dividend should be returned to the interested. Through the MFN provision in the tax treaty between Sweden and South Africa is in the ratio of participation dividends namely a withholding tax of 0{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} applies. This rate is based on the withholding tax on the dividends participation in the relations between South Africa and Cyprus, Kuwait and Oman.
- Legislative References
- Act 1965 dividend, validity: 2015-11-26
- Repositories
- Rechtspraak.nl
FutD 2015-2864
Pronunciation
COURT ZEELAND WEST BRABANT
Tax law, multi-room
Location: Breda
Case number BRE 15/395
statement of October 29th, 2015
Administrative decision referred to in section 8.2.6 of the General Administrative Law Act (AWB) in the case of
[interested] Ltd., established in [location X] (South Africa)
interested,
and
the inspector of the Tax Department,
the inspector.
1Origin and course of the proceedings
1.1.Interested party, with date June 30, 2014, filed a request for a refund of dividend tax withheld in respect of a dividend that took place on March 22, 2013. For the contents of the request, the court refers to what is listed below under 2.2.
1.2.By order of November 11, 2014 the Inspector rejected the request referred to in 1.1.
1.3.Interested party thereto by letter dated December 17, 2014, received by the inspector on December 18, 2014, objected.
1.4.In the appeal the inspector is asked to consent to prorogation on the basis of Article 7: 1a of the AWB. By letter dated January 21 2015, the court received on January 26, 2015, the inspector has forwarded the objection. In addition, he agreed to prorogation with the request.
1.5.The court parties by letters dated January 27 2015 also informed consent to prorogation. In respect of the appeal has raised the Registrar of interested a court fee of € 331.
1.6.The inspector filed a statement of defense.
1.7.Interested party, after being asked by the court the opportunity replicated in writing, after which the inspector has duplicated writing.
1.8.
The court hearing was held on September 17, 2015 in Breda.
There have appeared and heard on behalf interested, [A] (tax manager Netherlands) and the representatives of interested [gamchtigden] associated with [name office agents] in Rotterdam, and on behalf of the inspector, [defendant].
1.9.Interested hearing has nominated a written pleading and copies submitted to the court and to the inspector.The inspector at the hearing, with the agreement of the holder, inserted copies of a list of tax treaties concluded by South Africa. The further hearing traded been made an official report, a copy of which is annexed to this statement. The court has announced a written statement.
2Facts
Based on the documents of the case and the proceedings do is adopt:
2.1.Interested party is established in South Africa and holds all the shares in [B BV] (hereinafter: the BV), based in the Netherlands.
2.2.The BV has reported dividend, dated April 18, 2013, relating to a party made available dividend of € 10,851,096. The BV in respect of this dividend 5{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} dividend, ie € 542,554, withheld and paid. Interested applied for the refund of the full amount.
3Dispute
3.1.In dispute is whether concerned is entitled to a refund of Dutch dividend tax deducted under 2.2. Interested replied in the affirmative and the negative inspector.
3.2.The parties base their views on the further grounds that purpose by them landed in the documents emanating from them and the oral proceedings.
3.3.Interested contends founded explanation of the profession and provide a dividend tax refund of € 542,554. The inspector contends that dismissal of the appeal.
4Assessment of the dispute
4.1.
Article 10 of the Treaty between the Kingdom of the Netherlands and the Republic of South Africa for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital (hereinafter the Convention), to be closed Pretoria on October 10, 2005, Trb. 2006, 134 as amended by the Protocol (hereinafter: the Protocol) on July 8, 2008, Trb. 2008, 147 states, so far as relevant here:
“1. Dividends paid by a company-which is a resident of a Contracting State to a resident of the other Contracting State May be Taxed at That Other State.
2. However, Such dividends May ook be Taxed in the Contracting State of-which the company paying the dividends is a resident and accordion thing to the laws of That State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged Shall Not Exceed:
a. a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company-which holds at least 10 per cent of the capital of the company paying the dividends;
(…)
10. If under any convention for the avoidance of double taxation Concluded after the date of conclusion of this Convention between the Republic of South Africa and a third country, South Africa limits its taxation on dividends as contemplated in subparagraph a) or paragraph 2 of this Article to a rate lower, zoals exemption from taxation or taxation on a reduced Taxable base, than the rate provided for in subparagraph a) or paragraph 2 of this Article, the same rate, the same exemption or the same reduced Taxable base as provided for in the convention With That third State Shall automatically apply in both Contracting States under this Convention as from the date of the entry into force of the convention With That third State. “
The translation reads as follows (see Bulletin of Treaties 2008, 147.)
“1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.
2. Such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident, and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, may thus tax levied:
a. 5 per cent of the gross amount of the dividends if the beneficial owner is a company which holds at least 10 per cent of the capital of the company paying the dividends;
(…)
10. If South Africa pursuant to a convention for the avoidance of double taxation concluded between the Republic of South Africa and a third country, after the date on which it is closed, its tax on dividends as contemplated in the second paragraph, subparagraph a, of this article to a rate lower, including exemption from taxation or taxation on a reduced taxable base, than the rate provided for in the second paragraph, subparagraph a of this article, with effect from the date of entry into force of the treaty with the third State Automatically same same exemption or the same reduced taxable base effect in both Contracting States under this Treaty. “
4.2.
Article 31, paragraph 1, of the Vienna Convention of May 23, 1969, Trb. 1977, 169 reads:
“A treaty shall be interpreted in good faith in accordance with the ordinary meaning of the terms of the treaty in their context and in the light of its object and purpose of the treaty.”
4.3.
The tax treaty entered into force on December 25, 1995 between South Africa and Sweden (hereinafter DTC South Africa – Sweden) included – as far as is relevant here – the following provision regarding dividend:
“1. Dividends paid by a company-which is a resident of a Contracting State to a resident of the other Contracting State May be Taxed at That Other State.
2. Notwithstanding the Provisions of paragraph 1 Such dividends May ook be Taxed in the Contracting State of-which the company paying the dividends is a resident and accordion thing to the laws of That State, but if the recipient is the beneficial owner of the dividends, the tax so charged Shall Not Exceed 15 per cent of the gross amount of the dividends. However, if the beneficial owner is a company (other than a partnership) Which holds at least 25 per cent of the capital of the company paying the dividends, the dividends Shall –
(a) be exempt from tax in the Contracting State of-which the company paying the dividends is a resident if Such dividends are, without having regard to any tax payable in terms of this paragraph, exempt from tax in the State of-which the recipient is a resident; or
(b) be subject to tax in the Contracting State of-which the company paying the dividends is a resident at a rate not Exceeding 7.5 per cent of the gross amount of the dividends in any other case.
This paragraph Shall not affect the taxation of the company in respect of the profits out of-which the dividends are paid. “
On March 18 2012 a protocol entered into force whereby the DTC South Africa – Sweden has changed. This protocol (the protocol ZA-Z) reads in relevant part as follows:
“Article I
Paragraph 2 of Article 10 of the Convention Shall Be Replaced and deleted by the Following:
2. However, Such dividends May ook be Taxed in the Contracting State of-which the company paying the dividends is a resident and accordion thing to the laws of That State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged Shall Not Exceed:
(a) 5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) Which holds at least 10 per cent of the capital of the company paying the dividends; or
(b) 15 per cent of the gross amount of the dividends in all other cases.
This paragraph Shall not affect the taxation of the company in respect of the profits out of-which the dividends are paid.
Article II
The Following new paragraph Shall Be Immediately inserted after paragraph 5 of Article 10 of the Convention:
6 If any agreement or convention between South Africa and a third state biedt That South Africa Shall exempt from tax dividends (Either gene rally or in respect of specific categories of dividends) Arising in South Africa, or limit the tax charged in South Africa on Such dividends (Either gene rally or in respect of specific categories or dividends) to a rate lower Than That provided for in subparagraph (a) or paragraph 2 Such exemption or lower rate Shall automatically apply to dividends (Either gene rally or in respect Of Those specific categories or dividends) Arising in South Africa and beneficially owned by a resident of Sweden and dividends (Either gene rally or in respect Of Those specific categories or dividends) Arising in Sweden and beneficially owned by a resident of South Africa, under the same conditions as if Such exemption or lower rate had been Specified in That subparagraph.
Article III
(…)
2. The Provisions of the Protocol Shall apply for amounts paid or credited on or after the date of entry into force of the South African system of taxation at shareholder level of dividends declared, However, the earliest date being the first day of the month next Following the date on Protocol-which the yearlings into force.
Article IV
This Protocol Shall Remain in force for as long as the Convention remains in force. “
4.4.
At the time of the dividend mentioned in paragraph 2.2 ushered the tax treaty between South Africa and Cyprus, in relevant part, as follows with respect to dividend:
“1. Dividends paid by a company-which is a resident of a Contracting State to a resident of the other Contracting State Shall Be Taxable only in That Other State, provided Such resident is the beneficial owner or Such dividends. “
4.5.Interested argues that the MFN clause, as enshrined in Article 10, paragraph 10 of the Treaty implies that the dividend is exempt from withholding tax. The MFN clause applies as South Africa, after the treaty was concluded, has signed a new treaty with Sweden, which – at the time of this dividend payment – implies that, by virtue of the MFN clause in the treaty, with interests of more than 10{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} no dividend tax may be levied by the State of which the company paying the dividends is a resident. The MFN clause in the DTC South Africa – Sweden is indeed relevant, says still interested, since the treaties that South Africa with Cyprus (1998), Kuwait (2006) and Oman (2003) has concluded provide that – in brief – no dividend tax may be levied by the State of which the company paying the dividends is a resident.
4.6.The inspector argues that the MFN clause, as enshrined in Article 10, paragraph 10 of the Convention, both in his text as he intended to offer any reasons for the intended legal effect by the person concerned. When concluding the Protocol, South Africa had the intention, as in relation to other States, dividends paid by South African bodies no (longer) be exempt from withholding tax. The treaty between South Africa and Sweden, although subsequent to the Treaty but which does not provide for a more favorable rate than in the Treaty.Further lead the tax treaties between South Africa and Cyprus respectively, Kuwait and Oman not to apply the MFN clause in the Treaty because this tax before the Protocol are closed.
4.7.The parties rightly do not dispute that, at the time of under 2.2 mentioned dividend payment, the MFN provision of the DTC South Africa – Sweden (Article 10, paragraph 6, of the Convention, following amendment by the Protocol ZA-Z) is activated given – for example – the tax treaty between South Africa and Cyprus. The latter taxation treaty briefly in the fact that the State of a company which pays dividends is a resident shall not levy on such dividend. Given applies them based on the aforementioned MFN provision in the DTC South Africa – Sweden that ‘Such exemption or lower rate Shall automatically apply to dividends (…) Arising in South Africa and beneficially owned by a resident of Sweden and dividends (…) Arising in Sweden and beneficially owned by a resident of South Africa. ” In other words, the ‘lower rate’ (0{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e}) in the tax treaty between South Africa and Cyprus also applies to the relationship between South Africa and Sweden.
4.8.The court considers that the wording of Article 10, paragraph 10 of the Treaty means that in case South Africa – after the (Protocol to the) Convention is closed – taxes on qualifying participation dividends in another treaty restricted to a rate lower than 5{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e}, that rate also applies to dividends from shareholdings in Dutch qualifying South African bodies. The court considers that this case arises here at the time of this dividend payment.Because: (a) South Africa, on after the (Protocol to the) Treaty was signed a protocol agreement with Sweden, which – for the parties rightly is not in dispute – is to be classified as a treaty within the meaning of Article 10, paragraph 10 of the Treaty and (b) of this Protocol, South Africa has its tax on qualifying dividends participation restricted to a rate lower than 5{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} (see 4.7). The fact that the DTC South Africa – Sweden (as amended by the Protocol ZA-Z) in the second paragraph of Article 10 provides for a 5{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} rate does – unlike the inspector points out – this last unfinished. After all, that circumstance does not mean that South Africa by inclusion of another member, namely the fifth paragraph of Article 10 shall taxation of dividends (below) is limited. The circumstances that the latter limitation is based on an MFN and that paragraph does not specify a rate, cause – other than the inspector points out – neither to a different conclusion. The terms of the MFN clause in the Treaty – “limits its taxation on dividends (…) to a rate lower, zoals exemption from taxation or taxation on a reduced Taxable base, than [5{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e}; court] “- indeed indicate that the contracting parties not a narrow interpretation of the concept of a rate lower than ‘stood for but had a view on the actual applicable rate.
4.9.The court does not follow the inspector in his view that the intention of the contracting parties opposes the above explanation given in section 4.8 of the MFN clause. The inspector may be admitted that this is a special situation. The DTC South Africa – Sweden was envisaged before the conclusion of the Protocol ZA-Z already in – in short – a 0{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} rate, and that the Convention was concluded prior to the conclusion of the Treaty would be 0{780f53c297e2c008074d23b865a0ce0b35a4f08852d8e1e49466a5a902c4e44e} rate of the tax treaty South Africa – Sweden does not activate the MFN clause of the Treaty. However, there are enough clues in the inspector cited sources, provided that the light of the Vienna Convention could have been used for interpretation of the Treaty, that the Contracting States have intended to in a situation like this, the MFN clause does not apply to let his (notwithstanding its wording). The court also noted that the Inspector in his argument puts a strong emphasis on the treaty policies and objectives of South Africa, but this ignores that the Netherlands’ position is important. After all it was the Netherlands who called for inclusion of an MFN clause (cf.. Representatives, 2008-2009, 31 743, A, no. 1, pp. 2-3).
4.10.In view of the foregoing, the application must be declared and serves a refund of withheld by the BV and paid dividend of € 542,554 be granted to interested.
5Legal costs
The court finds reason to condemn the inspector into the costs incurred by interested party in connection with the hearing of the appeal reasonably. These charges are at the foot of the Decree on administrative costs for the set by a third professional legal assistance at € 1,225 (one point for filing the appeal, 0.5 point for submission of the reply and 1 point for the appear in court with a value of € 490 per point and a weight of 1).
6Decision
The court:
- –upholds the appeal;
- –provides a dividend tax refund of € 542 554;
– The inspector in the costs of interested condemns in the amount of € 1,225;
– Ordered that the inspector shall reimburse to them by interested registry fees of € 331.
This statement was made on October 29, 2015 by mr. CAFM Stassen, president, mr. MRT Pauwels and mr. MWC Sołtysik, judges, and on the same day delivered in public in the presence of mr. I. van Wijk, Registrar.
The Registrar, The President,
Copy sent to registered parties:
These being necessary first performance to be given if the decision has become final. The ruling is final and not within six weeks after the decision of an appeal or final ruling on the employed remedy (Article 27h, paragraph and article 28, paragraph AWR).
Remedy
Against this judgment the parties may, within six weeks after the mailing appeal at the court in ‘s-Hertogenbosch (Tax Chamber), PO Box 70 583, 5201 CZ’ s-Hertogenbosch.
When filing an appeal the following must be observed:
1. A copy of this statement is presented in the appeal and the
second – the appeal must be signed and at least disclose the following:
a. the name and address of the applicant;
b. a date;
c. a description of the decision against which the appeal has been lodged;
d. The grounds of the appeal.
For citizens, it is possible to appeal digitally set. For this purpose use can be made of the administrative forms on Rechtspraak.nl / Virtual office.
Against this ruling parties may also set within six weeks after the mailing appeal in cassation jump at the Supreme Court of the Netherlands (Tax Chamber), PO Box 20 303, 2500 EH The Hague.
In addition, the following should be considered:
1. A copy of this statement is presented in the appeal and the
second – the appeal must be signed and at least disclose the following:
a. the name and address of the applicant;
b. a date;
c. a description of the decision against which the appeal in cassation jump;
d. The grounds of appeal in cassation jump.
For appeal in cassation jump is due court fee. After an appeal in cassation jump the submitter receives a note Registry charge of the Registrar of the Supreme Court.
In the cassation appeal, the Supreme Court may be called upon to condemn the other party to the proceedings.
Responses