Repayment of share premium: subject to dividend tax?

We serve another Dutch holding company that was held by an offshore company until recently. The offshore company granted an interest free loan to the Dutch company in 2013. The new bookkeeper of the company erroneously reported the loan as “share premium” in the 2013 financial statements.

A few years later the loan was repaid. The 2015 financial statements of the Dutch company nevertheless mentioned a repayment of “share premium” rather than a loan as it was erroneously reported as share premium in the first place.

Why is this of relevance? A repayment of share premium of a profit-making-company is subject to Dutch dividend tax, unless the repayment is structured properly.

Given that the Dutch holding company had accumulated profits, the Dutch tax authorities announced to impose a 15% dividend withholding tax assessment (including a fine) due to the repayment of share premium. Formally they had a strong argument.

It took us quite some effort to convince the Dutch tax inspector of the good intentions of the client. Finally, the dividend tax assessment was cancelled. A big relief, especially for client’s inhouse bookkeeper!