ECJ - Recent Developments in Direct Taxation 2012

S. 165The Netherlands: pending cases X BV, C-24/12 and TBG Limited, C-27/12: discriminatory taxation of outbound dividends, the Netherlands overseas countries & territories and the free movement of capital

S. 1671. Introduction

The Netherlands participation exemption regime constitutes one of the main pillars of the Netherlands company tax system. This regime seeks to avoid economic double taxation of business profits distributed within a group of companies. Such double taxation could occur in parent-subsidiary relationships if profits were taxable, firstly, at the level of the subsidiary and, secondly, after distribution of these profits, at the level of the parent company. Under the Netherlands participation exemption, such profit distributions are consequently exempt from Netherlands corporate income tax at the level of the parent company. In order to ensure the proper functioning of the Netherlands participation regime, it is stipulated that profit distributions made by a Netherlands subsidiary to its Netherlands parent are exempt from Netherlands dividend withholding taxation at the level of the parent company as well. This is because the Netherlands dividend withholding tax functions as an...