On 17 August 2017, a Dutch lower court ruled that dividend payments from the Netherlands to South African corporate entities with 10% or more ownership in the company are not subject to Dutch dividend withholding tax.

The case involved a 2013 payment of dividends from a Dutch subsidiary to a South African shareholder, for which 5% tax was withheld. In 2014, the shareholder requested a refund of the tax withheld, claiming that the MFN clause added to the Netherlands-South Africa treaty had been triggered with the signing of the 2010 protocol to the South Africa-Sweden tax treaty, which resulted in an exemption for dividends between South Africa and Sweden.

The Netherlands-South Africa double tax treaty was concluded in 2005 and limits the taxation of dividends at source to 5% if the recipient qualifies as beneficial owner and holds more than 10% of the shares in the entity paying the dividend. In addition, the MFN clause in this treaty (amended by a Protocol in 2008) provides for an automatic application of a lower dividend withholding tax rate if South Africa and a third country conclude a tax treaty which provides for a lower dividend withholding tax rate or an exemption.

The tax treaty between South Africa and Sweden (SA-SW Treaty) was signed in 1995 and amended through a Protocol in 2012. The 2012 Protocol introduced an MFN clause that does not contain any limitation regarding the date on which the more beneficial tax treaty with a third state was concluded.

South Africa also concluded treaties with Cyprus (1998), Oman (2003) and Kuwait (2006) in which no dividend withholding tax is due if certain conditions are met. The tax treaty concluded between South Africa and Kuwait which entered into force in 2006 also provides for an exemption of dividend withholding tax.

The taxpayer argued in the court case that no dividend withholding tax should be due on dividend distribution between South Africa and the Netherlands based on the MFN clause in the Treaty and furthermore taking into account the MFN clause in the amended tax treaty between South Africa and Sweden. The lower court accepted this tiered approach and ruled that as from 18 March 2012 the 0% dividend withholding tax is applicable. The Dutch tax authorities have filed an appeal to the judgment which is currently pending.