Tax Treaty Case Law around the Globe 2015

S. 141Netherlands: Taxation of Notional Amount (Box 3) Rather than Paid Dividend: No Tax Treaty Override

Eric C.C.M. Kemmeren

I. S. 142Introduction

In globalizing economies, individual portfolio investors not only invest in their home countries, but also increasingly invest across borders. In this context, they also face different tax treatment of the return on their investments. Whereas many countries tax resident individuals on the actual return on their portfolio investments, although this means capital gains may frequently go untaxed, the Netherlands does not tax the actual realized income, instead it taxes a notional income. With respect to portfolio investment in shares, this means that the actual paid dividends and realized capital gains are not taxed, but that a notional amount is taxed. The tax treatment of returns on portfolio investments determines to a certain extent the net return on investments. Therefore, an individual portfolio investor will take into account the tax treatment of his investment, including the treatment under tax treaties, when deciding where and how to invest. A number of issues are still unclear, however. Therefore, both from an academic and practical point of vi...