Netherlands Still Likely to Scrap Dividend Tax Amid Memo Fallout

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By Linda A. Thompson

The Dutch government is unlikely to budge on plans to abolish a tax on dividends, even after it was revealed the change was designed to boost foreign shareholders of multinational companies.

The Dutch government on April 24 released a series of confidential memos revealing that their plan to end the 15 percent withholding tax on dividend distributions starting in 2019 was engineered to protect countries like Unilever Netherlands and oil giant Shell Nederland B.V., which said the levy hurt their business.

The memo release set off a series of problems for the Dutch government. The documents show the Dutch Finance Ministry warned against ending the tax, and lawmakers have accused the government of hiding them for that reason. The existence of the memos also contradicts previous comments from Dutch Prime Minister Mark Rutte.

In a nine-hour meeting April 25 with lawmakers, he admitted he should have double checked whether there were memos on the topic. But he denied having lied to lawmakers, some of whom said the memos throw his credibility in question.

“I should have said: This is not relevant. But well, we all make mistakes,” Rutte said.

The government has previously estimated ending the tax will reward foreign companies with tax savings of 1.4 billion euros ($1.7 billion).

Censure Fails

Response from opposition lawmakers was swift and fierce.

They introduced April 25 a motion criticizing the government’s actions, which was backed by all but one of the nine opposition parties in the House. The motion was defeated by the ruling parties, which have a majority of one seat in the House.

A motion calling on the government to abandon its plans to axe the tax, announced as part of the government’s October 2017 ruling agreement, also failed to muster enough votes.

Sybrand van Haersma Buma, leader of the Christian Democratic Appeal, defended lawmakers’ right to make political decisions that aren’t supported by finance ministry officials. “If we all we do is read official documents, we’d have to abolish ourselves because we would no longer make decisions that are political choices.”

He added that a memo from the Ministry of Economic Affairs, also released April 24, also offered arguments in favor of scrapping the tax.

He said the memo showed the abolition of the tax is “very important” to the Netherlands’ appeal as an investment location, pointing out that the measure would help fend off hostile takeovers of resident companies like Unilever and Akzo Nobel NV.

’Political Discussion’

Francis Weyzig, senior policy adviser on tax justice and economic inequality at Oxfam Novib, the Dutch arm of the global charity, said it was difficult to say whether the ruling coalition might still reconsider its plans given the commotion over the memos and the negative advice contained in them.

Even though the plenary debate focused on “the procedure” and lawmakers’ previous statements in light of the information in the memos, it has demonstrated that the coalition forms a united front, he said.

Since the four ruling parties have a majority of one seat in the House and the plans to abolish the tax form part of their ruling agreement, the measure will become law unless one of the parties breaks rank.

“So I wonder to what extent, and if, arguments can even play a decisive role in this political discussion,” he said, pointing out that Oxfam Novib was opposed to any measure facilitating international tax avoidance and thus also opposed the abolition of the tax.

He added that the end of the dividend withholding tax would give rise to new forms of tax avoidance by companies based in other countries where dividend distributions do face a withholding tax.

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

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

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