TPcases

The interested party bought AEX-listed shares, sold three-month futures based on those shares through its shareholder/broker [D], and lent the shares to [D] (stock lending). It received cash collateral ($ deposits as collateral) and a stock lending fee for its lending. According to the interested party, the shares always briefly reverted to its ownership around their dividend dates through registration in the interested party’s securities account with the French custodian bank on the basis of legal transactions between its shareholder [D] and it, represented by [D].

In dispute is the question whether the interested party is entitled to a set-off of € 39,249,246 in Dutch dividend tax withheld from the dividends on the shares lent by her. Did she receive the dividends (was she the beneficial owner?) and if so, was she also the ultimate beneficiary of the dividend?

Also in dispute is whether the Inspector rightly imposed an information decision and thus a reversal and increase of the burden of proof on her for the years 2009/2010, 2011/2012 and 2012/2013 due to a breach of her administration or retention obligation.

The Amsterdam Court of Appeal has deemed it decisive for the right of set-off whether

(i) the interested party was the legal owner of the shares at the time of the dividend distribution and

(ii) she was also the beneficial owner of the dividend as referred to in Article 25(2)(1st sentence) of the Dutch Corporate Income Tax Act.

The Court of Appeal concluded that the interested party had not made it plausible that she was the legal owner and therefore entitled to the proceeds, and alternatively held that she was not the beneficial owner either. According to the Court of Appeal, the interested party did not comply with its obligation to keep records and accounts because, among other things, crucial transaction data was missing from its administration. As a result, it cannot be determined whether the legal transactions alleged by the party have been carried out by it or on its behalf, the Court of Appeal considers the shortcomings of such importance that reversal of the burden of proof is not disproportionate.

A-G Wattel believes that the Court of Appeal’s criterion for entitlement to proceeds (whether the interested party was the legal owner of the shares) is not entirely correct. What matters is who is entitled to the proceeds (the dividends), not who is a shareholder.

Furthermore, given the fact that according to private international law, the question who is entitled to the dividend is not governed by the law of the country where the shares are administered (in this case France), but by the law of the country of incorporation of the company (in this case the Netherlands), the question of cale ownership is of little relevance and the French law invoked by the interested party is not relevant.

According to A-G Wattel, the Court of Appeal’s findings of fact and evidentiary rulings imply that also based on the correct standard (entitlement to yield / basis of inclusion) the interested party, on whom the burden of proof rests, has not made it plausible that she was the direct recipient of the dividend and that (therefore) the dividends (and not something substituting or different) were included in her profit.

Based on the very extensive and meticulous investigation of the facts and the many relevant documents, the A-G considers this opinion of the Court of Appeal understandable and (amply) substantiated.

The main ground of appeal about ultimate entitlement is not discussed, but for the sake of completeness the A-G discusses the judgment of the Court of Appeal about ultimate entitlement and its division of the burden of proof. He considers it unclear which standard the Court of Appeal uses for the interpretation of (not) ‘ultimately entitled’.

The Court of Appeal does not visibly follow the three objective criteria in Section 25(2) of the Corporate Income Tax Act, apparently assuming on the basis of the legislative history that the statutory negative description of beneficial owner does not intend to exclude that in other cases beneficial ownership is deemed to be absent. A-G Wattel considers this to be correct in itself, but the criterion for those other than the statutory cases would then have to be made explicit.

However, the Court does not visibly follow the Market maker judgment or the official OECD commentary either.

Moreover, the burden of proof in this question lies reversed, with the Inspector, but the Court of Appeal bases its subsidiary opinion that the interested party was not ultimately entitled on the same factual judgments and considerations as its primary opinion.

If the Supreme Court is allowed to address this ground, A-G Wattel considers it well-founded as far as it complains about an incorrect distribution of the burden of proof and perhaps also as far as it complains about an incorrect standard, since the Court’s standard for ultimate entitlement is unclear.

With regard to the information decision, Advocate General Wattel considers that the Court’s judgment that the tax authorities should not be lacking in the applicant’s records is neither incomprehensible nor insufficiently reasoned. In his opinion, the Court of Appeal could also decide, without violating the law or its obligation to state reasons, that the reversal and increase of the burden of proof is not disproportionate to the established facts, given the nature of the business of the interested party’s group and the very large tax interest. He noted that the interested party had little interest in this plea, since it could raise the justification for the information decision and the proportionality of a reversal of the burden of proof linked to it again in the proceedings concerning the VAT assessments for the relevant financial years.

He did consider the complaint that the Court, in violation of Section 27e(2) AWR, did not give the interested party a term to remedy the administrative shortcomings to be well-founded. In his opinion, the case should be referred to the Court in order to assess whether rectification is still possible from the point of view of evidence. According to A-G Wattel, the remaining principal arguments do not lead to cassation either. In that case, the condition under which the two incidental grounds of cassation were submitted has not been met, so that the State Secretary’s incidental appeal does not come up for discussion.

Conclusion: ground (vii) well-founded; all other principal arguments unfounded; leave the conditional incidental appeal to the Supreme Court unheard; refer the case back to the Court of Cassation for an investigation into whether it is still possible, from the point of view of the law of evidence, to make good the administrative errors for the tax years 2009/2010, 2011/2012 and 2012/2013.

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