On 10 November 2025, the Dutch Advocate-General Wattel issued an advisory opinion to the Dutch Supreme Court regarding the Dutch tax treatment of Brazilian IoNE payments in three cases. The Advocate General concluded that Brazilian interest on net equity (IoNE) is classified as dividends (Article 10), qualifying for the tax sparing credit of 25%, instead of interest. The classification of Brazilian IoNE payment is now up to the Dutch Supreme Court.

The opinion, which was obtained by EY Netherlands, will be publicly available here.

Background

The case involves the classification of Brazilian IoNE under the Netherlands-Brazil Tax Treaty, specifically for corporate income tax years 2018 and 2019. The dispute centers on whether IoNE should be treated as a dividend (eligible for a 25% tax sparing credit) or as interest (eligible for a 20% tax sparing credit) under Article 23 of the Treaty.

Advocate General's opinion

The Advocate General's opinion contains three conclusions:

1. IoNE is classified as dividend.
2. IoNE is not classified as interest.
3. The 2022 mutual agreement procedure (MAP) should be disregarded (or in any case should not have retroactive effect).

The Advocate General recommended that the Dutch Supreme Court deny the appeal of cassation (review on legal grounds) of the Dutch State Secretary for Finance.

Issues

IoNE classifies as dividend

In line with the taxpayers' arguments, the Advocate General considered IoNE "income from shares" under Article 10 of the Tax Treaty. In support of this conclusion, the Advocate General said that IoNE can only be paid if there are profits, payments are declared by means of shareholder resolutions and IoNE payments are declared to shareholders in proportion to their share interests.

The Advocate General also cited Supreme Court rulings from Spain and Germany, in which similar conclusions were drawn with respect to the treatment of IoNE.

IoNE does not classify as interest

The Dutch State Secretary of Finance argued that the treatment of IoNE is assimilated to that of interest for Brazilian federal income tax purposes, resulting in being classified as interest as meant in Article 11 of the Tax Treaty.

The Advocate General disagreed, classifying IoNE as dividends and stating that the only similarity with interest is deductibility. Even if that position were upheld, the Advocate General states that either Article 10 would prevail, as it is the first applicable article in the Treaty in terms of order, or both articles would apply simultaneously, in which case the Dutch taxpayer should receive the most favorable withholding tax credit (25%).

2022 mutual agreement procedure should be disregarded

In April 2022, the competent authorities of Brazil and the Netherlands agreed via an interpretative MAP that IoNE is classified as interest. According to the Dutch State Secretary for Finance this, by itself, would result in the classification of IoNE payments as interest under the Treaty.

The Advocate General argued that such interpretative agreements cannot disadvantage taxpayers, because the interpretations are agreed upon by the competent authorities and not the legislature. Holding the taxpayer to such an interpretative agreement would violate legal certainty and democratic principles.

In the underlying cases, the IoNE payments were declared before the publication of the MAP. The retroactive applicability of the MAP as proposed by the State Secretary would further violate the principle of legal certainty.

Practical implications

If Brazilian entities have declared IoNE payments to Dutch shareholders in years that are still open (no assessment received or still open to objection), or if future IoNE payments are considered, affected taxpayers should consult a qualified tax advisor for advice and assistance.

Note that the conclusion on the impact of interpretative MAPs might be of use in other jurisdictions as well.

The Dutch Supreme Court is expected to rule in 2026 on the three cases discussed in the advisory opinion.

Separately, the Brazilian Senate has approved legislation, regarding the introduction of a 10% WHT on dividends, taking effect on 1 January 2026. This increases the benefit of IoNE payments in comparison to regular dividends. For more information, see EY Global Tax Alert, Brazilian Senate approves 10% withholding tax on dividends paid to nonresident shareholders and Individual Income Tax changes, dated 6 November 2025.

For Dutch companies with Brazilian interests, there are some unique options for tax-efficient cash repatriation and for structuring Brazilian subsidiaries via Dutch holding companies. Again, consulting with a qualified tax advisor is key.