Debate Over Netherlands’ Tax Treatment of Shell Heats Up

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By Linda A. Thompson

Practitioners are divided over whether an agreement between Shell and the Dutch tax administration breaks EU government aid rules.

The debate has heated up in recent days after an article released June 18 by a Dutch academic claimed Royal Dutch Shell Plc avoided a tax on dividends by routing shares through a trust in the Channel Island of Jersey.

The article is the latest example of the controversy surrounding the country’s 15 percent withholding tax on dividend distributions, which some companies, like Shell, have long said hurts their bottom line. The Dutch government has faced criticism for its plan to abolish the tax starting next year after a trove of confidential memos revealed the plan is meant to boost foreign shareholders of multinational companies.

But practitioners’ uncertainty over the 2005 deal specifically signals the challenge facing Dutch lawmakers in reconciling corporate taxpayers’ right to confidentiality with demands from opposition lawmakers and tax justice advocates to shed more clarity on individual tax deals.

Shell didn’t immediately return a request for comment.

State Aid?

The company received permission to use the structure in 2005 during a merger of its British and Dutch parent companies, but the agreement may have violated Dutch withholding tax rules, according to the article, written by Jan van de Streek, a professor at the University of Amsterdam.

In response to the article, Paul Tang, a Dutch member of parliament, called for the European Commission to open a state-aid investigation, according to a June 18 article in the Dutch newspaper Trouw. The scheme between Shell and the tax authority mirrors similar arrangements involving Starbucks Inc., Apple Inc., and Amazon.com Inc., he said. Those arrangements have resulted in massive penalties from the commission.

‘Struggling to See’

“I’m struggling to see how this could amount to state aid because as far as I can see it’s not a benefit granted by either the U.K. or the Netherlands,” said Miles Dean, managing partner at Milestone International Tax Partners LLP. He added that the U.K. shareholders were being put back into their pre-merger position of receiving dividends without withholding tax. The U.K. doesn’t levy a dividend withholding tax.

Dean said there is no reason for companies to avoid the rerouting of dividends through this dividend access mechanism, although he pointed out that the structure might carry a reputational risk due to negative media coverage.

He said he would still advise international companies to set up a dividend access mechanism if this allowed them to reduce their tax bill without breaching any anti-avoidance or state aid legal rules.

Technical Briefing

Thomas Dasselaar, a tax lawyer at Vandoorne, told Bloomberg Tax that it’s impossible to say whether Shell violated state-aid rules because enough details are not public.

“I don’t think anyone can say anything until they’ve seen the full text of the ruling, which will not normally come out,” he said.

Under the Netherlands’ General Tax Act law, tax administration officials aren’t allowed to disclose information about individual taxpayers. Dasselaar, however, noted that Dutch Finance Minister Menno Snel could disclose details under a strictly defined set of circumstances.

In March, Snel said he was open to publishing anonymized versions of tax deals to resident companies, after facing pressure to do so.

Snel might also, for instance, order that details of the ruling be disclosed to lawmakers in a closed-doors, technical briefing for the leaders of the various political parties elected to the House of Representatives, or the members of the parliamentary Finance Committee. Such a technical briefing could be organized as early as next week, Dasselaar said.

Prime Minister Mark Rutte said during a June 19 meeting that he would order such a briefing to be organized next week.

“We’ll have to wait to see whether any details of this briefing later come out,” he said.

To contact the reporter on this story: Linda A. Thompson in Brussels at correspondents@bloomberglaw.com

To contact the editor on this story: Penny Sukhraj at psukhraj@bloombergtax.com

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