Offsetting Dividend Taxation through Corporate Taxation for Resident Undertakings and the Free Movement of Capital

This note examines the case of XX v. Inspecteur van de Belastingdienst (Unit-linked contracts) (Case C-782/22), wherein a UK-based insurance company challenged the Dutch tax system’s treatment of dividend taxation for non-resident companies. The core issue was whether Netherlands tax law, which allows resident companies to offset dividend tax against their corporate tax but imposes a final 15% tax on non-resident companies, constituted a justified restriction on the free movement of capital under article 63(1) of the TFEU. The Court of Justice of the European Union found: (i) that this differential treatment did constitute a restriction, (ii) that resident and non-resident companies in this situation were comparable, and (iii) rejected the Netherlands’ attempted justifications for the restriction, including the preservation of the coherence of the tax system and prevention of double deduction of expenses. This decision, favouring the non-resident company, underscores the importance of non-discriminatory tax treatment of direct taxation instruments under the free movement of capital in EU law.