In its judgment of 28 January 2026, the ’s‑Hertogenbosch Court of Appeal (ECLI:NL:GHSHE:2026:189) ruled on the treaty qualification of income derived from a lucrative interest in an international context. The case addresses the notion of the tension between a literal treaty interpretation and an economic approach advocated by the tax authorities in lucrative interest cases involving cross‑border situations.

The taxpayer, an individual resident in a treaty state (Germany), held an equity interest in a Dutch entity that qualified as lucrative interest under Dutch domestic tax law. The interest entitled the taxpayer to disproportionate gains, including dividend income and a gain upon disposal of the shares.

The tax inspector argued in favour of a substance‑driven approach, asserting that lucrative interest income is fundamentally remuneration for services and should therefore not automatically follow the treaty allocation rules for dividends and capital gains.

The Court upheld the decision of the District Court (ECLI:NL:RBZWB:2024:1503), confirming that both dividend distributions and disposal gains realised by an individual holding a lucrative interest must be allocated under the dividend article (Article 10) and capital gains article (Article 13(5)) of the applicable tax treaty. As a consequence, Article 14 (independent personal services) was not considered relevant.

The Court explicitly endorsed a grammatical and systematic interpretation of the treaty provisions. It held that treaty qualification must be determined first and foremost by reference to the legal form of the income, unless the treaty itself provides for a different approach.

Importantly, the Court noted that the OECD Model Tax Convention does not allow for a general override of distributive rules based on economic equivalence. While specific double tax treaties may contain specific recharacterisation clauses, no such provision applied in this case.

The Court of Appeal’s decision marks an important step in the evolving case law on lucrative interest taxation in international situations. By prioritising treaty text and structure over economic recharacterisation, the Court has strengthened the position that lucrative interest income does not constitute a separate treaty category but must be classified in accordance with the underlying legal rights through which it is realised.

It should be noted that the Dutch tax authorities have lodged an appeal with the Dutch Supreme Court.