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HMRC internal manual

International Manual

DT Agreements: Netherlands - Income from a UK source paid to a resident of Netherlands

UK dividends paid to a resident of Netherlands - direct investor

See INTM343540 for an explanation of ‘directinvestor’.

The DTA (see Article 10) provides that a direct investor company is entitled to a taxcredit equal to half the tax credit to which a UK individual would be entitled. And forthe payment of the excess of that tax credit after retention of 5% of the aggregate of theUK dividend plus the half tax credit. Examples of the way in which relief is calculatedcan be found at INTM343540.

Under the terms of Article 10(3)(d)(i) of the DTA a Netherlands company is entitled to atax credit if

  • its shares are officially quoted on a Netherlands Stock Exchange and
  • the conditions of admission to a quotation are in conformity with the conditions set out in Schedule A to the Directive of the Council of the European Communities dated 5 March 1979 No. 79/279/EEC.

The rules for admission to a quotation on a Netherlands Stock Exchange are not reallyany different from the conditions set out in Schedule A to the EU Directive. Where thecompany’s shares are quoted on the Netherlands Stock Exchange you can accept thatthis condition for relief is satisfied.

There is a question on the Netherlands/Direct Investor Company/Credit claim form that willhelp you to identify whether the claimant company’s shares are officially quoted on aNetherlands Stock Exchange. If its shares are ‘quoted’, a Netherlands Limited company orNV (Naamlooze vennootschappen) is entitled to a tax credit if all the other conditions forrelief are satisfied.

Article 10(3)(d)(i) of the DTA also provides that where the shares of the company are notquoted on a Netherlands Stock Exchange relief may still be available. In these cases thecompany must be able to show that it is not controlled by a person or two or moreassociated or connected persons together, who or any of whom would not have been entitledto a tax credit if he had been the beneficial owner of the dividends.

Article 10(3)(d)(ii) defines ‘control’ as meaning ‘control’ for UK taxpurposes. There are definitions of control for various Corporation Tax purposes in ICTA1988/S416 and S840. These indicate that in general a person has control of a company if hehas the power to secure that the affairs of the company are conducted in accordance withhis wishes. This may be achieved in various ways but a person is likely to be regarded ascontrolling a company if, for example, he possesses or is entitled to acquire the greaterpart of the voting power in the company or the greater part of the share capital or of theissued share capital of the company.

Where the shareholders of a company that is not quoted on a Netherlands Stock Exchange arenot Netherlands resident individuals the company must be able to show that it is notcontrolled by a person or two or more associated persons acting together who or any ofwhom would not be entitled to a tax credit if they were the beneficial owner(s) of thedividends. For this purpose we have to look at the control of the controlling persons toconfirm that none of them is controlled by non-qualifying persons. Provided that is thecase relief is likely to be allowable. All such cases should be referred toTechnical Advice Group before relief is allowed.

Dividend Stripping

The anti-dividend stripping provisions (see Article 10(6)) apply where the Netherlandscompany owns 10% or more of the class of shares from which the dividend is paid.Unusually, the dividend stripping provisions only apply when the claimant does not sufferNetherlands tax on the dividend. There is an appropriate question on the dividend claimforms to help you identify these claimants.