Brazilian Interest on Net Equity (IoNE) ligible for a 25% tax spearing credit

The Dutch Court of Appeal in ’s Hertogenbosch has ruled that Brazilian Interest on Net Equity (IoNE) qualifies as a dividend rather than interest for treaty purposes under the Netherlands–Brazil tax treaty. As a result, a Dutch parent company is entitled to a 25% tax sparing credit instead of the 20% credit applied by the tax authorities. The case concerned IoNE payments received in 2018 from a Brazilian subsidiary. The court held that IoNE constitutes “income from shares”, as it is paid exclusively to shareholders, depends on equity participation, and is economically linked to the provision of risk capital. Where there is doubt as to whether IoNE could also fall under the definition of interest, that doubt must not be resolved to the taxpayer’s detriment. Notably, the court disregarded a later mutual agreement procedure (MAP) outcome and related policy guidance, ruling that these cannot have retroactive effect. The decision strengthens the position of Dutch companies with Brazilian subsidiaries and may open opportunities to reassess prior years.