Köln-Aktienfonds Deka> ("KA Deka") is an investment fund constituted under German law. It is a UCITS within the meaning of Directives 85/611 and 2009/65, open-ended, listed on the stock exchange, without legal personality and exempt from tax on profits in Germany. It makes investments on behalf of individuals.
During the financial years 2002/2003 to 2007/2008, KA Deka received dividends distributed by Dutch companies, in which it held shares. Those dividends were subject, in accordance with the Netherlands-Germany double tax treaty ("DTT"), to a tax of 15%, which was withheld at source. KA Deka, unlike an investment fund established in the Netherlands meeting the conditions enabling it to qualify as a fiscal investment enterprise ("FIE"), was not able to benefit from the repayment of that tax based on Article 10(2) of the Law on the Taxation of Dividends of 1965.
FIEs are subject to a zero-corporation tax rate and benefit from the refund of dividend tax withheld on dividends received in the Netherlands. In order for an undertaking to qualify for the FIE regime, one of the conditions that needs to be fulfilled is that it distributes its income to its shareholders or participants within 8 months following the financial year end. When they distribute dividends, FIEs are required to withhold Netherlands tax on the recipient's dividends. KA Deka is not subject, in the Netherlands, to the obligation to withhold tax on dividends that it has itself distributed. Furthermore, it is required that the participants in the investment undertakings are predominantly individuals without a significant concentration of shares in the hands of single investors.
FIEs are also entitled to a reduction of dividend withholding tax on profit distributions in respect to tax deducted at source on their investment products abroad.
The FIEs regime is intended to enable natural persons, and, in particular, small investors, to make collective investments in certain types of assets. The aim of that regime is to bring the tax treatment applicable to private individuals who invest through an FIE in line with the tax treatment of private individuals who make investments on an individual basis.
KA Deka applied for a refund of the dividend tax deducted from its dividends distributed by Netherlands companies for the financial years 2002/2003 to 2007/2008 to the Netherlands tax authorities, which was rejected. When bringing an action before the District Court of Zeeland-West-Brabant (Netherlands), KA Deka argued that its situation could be compared to that of an investment fund established in the Netherlands which has the status of an FIE, as referred to in Article 28 of the Law on Corporation Tax of 1969, and that it was therefore entitled to a refund of the dividend tax under Article 63 TFEU.
The Supreme Court of the Netherlands noted, as a preliminary point, that, in its legal form, KA Deka could be classified as an FIE and is, in that regard, objectively comparable to an FIE established in the Netherlands. The Supreme Court states that, whereas an FIE established in the Netherlands would have been entitled to the refund of WHT, KA Deka cannot derive any right to a refund of dividend tax either from Netherlands legislation or from the DTC between the Netherlands and Germany.
The questions referred to the CJEU were as follows:
(1) Does art.63 TFEU mean that an investment fund established outside the Netherlands cannot be refused, on the ground that it is not subject to an obligation to withhold Netherlands dividend tax, a refund of Netherlands dividend tax which was withheld on dividends which that investment fund received from corporate bodies established in the Netherlands, when such a refund is granted to a fiscal investment enterprise established in the Netherlands, which, subject to the withholding of Netherlands dividend tax, distributes the proceeds of its investments to its shareholders or participants on an annual basis?
(2) Does art.63 TFEU mean that an investment fund established outside the Netherlands cannot be refused a refund of Netherlands dividend tax which was withheld on dividends which it received from corporate bodies established in the Netherlands on the sole ground that it has not proved in a satisfactorily manner that its shareholders or participants satisfy the conditions laid down in Netherlands legislation?
(3) Does art.63 mean that an investment fund established outside the Netherlands cannot be refused a refund of Netherlands dividend tax which was withheld on dividends which it received from corporate bodies established in the Netherlands, on the ground that it does not distribute the proceeds of its investments in full to its shareholders or participants on an annual basis at the latest in the eighth month following the end of the financial year, even if, in the country in which that investment fund is established, under the legislation there applicable, the proceeds of its investments, to the extent to which they are not distributed, (a) are deemed to have been distributed, and/or (b) are taken into account in the tax levied in that country on the shareholders or participants as though those profits had been distributed, whereas such a refund is granted to a fiscal investment enterprise established in the Netherlands, which, subject to the withholding of Netherlands dividend tax, distributes the proceeds of its investments in full to its shareholders or participants on an annual basis?'
Analysis of the CJEU
The first question referred was withdrawn by the Dutch Supreme Court following the delivery of the judgment of 21 June 2018, Fidelity Funds and Others (C‑480/16, EU:C:2018:480). In the latter case, the Danish Ministry tried to argue that due to the need to safeguard the coherence of the tax system and ensure a balanced allocation of power to tax between Member States, such discrimination would be justified. This would have been one of the few justifications for a discriminatory tax treatment.
The Danish Ministry further argued that the difference in tax treatment was justified by the direct link between the exemption from withholding tax on dividends paid to resident UCITS and the need to deduct Danish withholding tax on distributions paid out by the UCITS to its investors.
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