Netherlands Used Tax Break to Keep Shell, Unilever in Netherlands (1)

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By Linda A. Thompson

The Dutch government’s surprise decision to abolish the country’s dividend withholding tax was fueled by concerns that Anglo-Dutch corporations like Shell and Unilever would leave the Netherlands in favor of the UK.

Fears that the Netherlands would lose major corporations over a difference in the tax treatment of dividend distributions were the main driver behind the government’s decision to abolish the tax, according to more than 50 pages of confidential documents released by the Dutch Ministry of General Affairs April 24. Dividend distributions face a 15 percent withholding tax in the Netherlands.

Both companies previously warned the government in a parliamentary committee meeting that the tax hampered their growth. The bombshell details in the documents could be seen as signaling a willingness on the part of the Dutch government to ensure tax rules are favorable to companies.

The released memos will be addressed in a Dutch House of Representatives meeting April 25.

The government has previously estimated ending the tax will reward foreign companies with tax savings of 1.4 billion euros ($1.7 billion). The tax will end in 2019.

The October 2017announcement to scrap the tax stoked outrage from opposition lawmakers and tax justice advocates after it became evident the measure would result in a higher tax burden for resident taxpayers and would benefit foreign shareholders. The documents make clear it was a key consideration for Prime Minister Mark Rutte and his pro-business party VVD during the government formation negations following the country’s March general elections.

The Structures

Oil giant Shell Nederland B.V. has a dual share structure, with U.K.-source dividends that aren’t subject to taxation—the U.K. does not have a dividend withholding tax. Shell has spent more than a decade fighting the tax, its chief executive said at the December parliamentary meeting.

Unilever Netherlands, meanwhile, has two head offices and two dividend streams—a U.K. stream that is exempt from dividend withholding tax and a Dutch stream that is subject to the levy. In March, after the Dutch government abandoned the dividend tax, the consumer products giant announced it would make its Dutch unit its sole head office. A Unilever spokesperson told Bloomberg Tax that decision wasn’t fueled by tax considerations.

One of the documents, put together by Rutte’s fellow party member and then outgoing State Secretary for Finance Eric Wiebes, states that “Unilever and Shell might still opt for the Netherlands in their choice of a nationality” provided the abolition of the tax is accompanied by timely consultations with the two companies.

A spokesman for Unilever declined to comment. A spokesman for Shell said the company had long underlined that the Dutch dividend tax is “important” to both the competitiveness of the Netherlands and Shell, and that the company cherished its connection to the country.

“The dividend tax is an important aspect of the Netherlands’ appeal as an investment location. And that appeal as an investment location is an important consideration when decisions on the location of head offices are made,” he said in April 25 email to Bloomberg Tax.

Who Wanted It?

The release of the memos follows months of pressure from opposition lawmakers to get more details about the ruling parties’ motives to end the tax.

Opposition lawmakers and tax justice advocates have repeatedly pointed out that not a single political party campaigned on abolishing the tax, which has created the impression that companies and business interest groups pressured negotiators from the four ruling parties—the Christian Democratic Appeal, the prime minister’s VVD party, the liberal-democratic D66, and the Christian-Democratic ChristenUnie—to abolish the tax in closed-door meetings.

Negative Advice

Memos dated July 5 and July 7, 2017, reveal that officials from the Dutch Finance Ministry warned against the abolition of the dividend withholding tax because it would:

  •  Increase the likelihood that the Netherlands is used for profit-shifting structures;
  •  Result in the EU listing the Netherlands as a tax haven;
  •  Benefit foreign tax coffers and foreign shareholders;
  •  And increase the tax burden on domestic taxpayers.
During an April 25 House of Representatives meeting, lawmakers accused Rutte of giving the impression that there were no memos about the abolition of the tax, because of the negative advice the finance ministry had issued.

“The documents were withheld because an image emerges from all the official documents that scrapping the dividend tax is a bad idea. The suggestion that there were no memos was not created unintentionally; the intention was to create that suggestion,” said Labor Party leader Lodewijk Asscher.

Along with several other opposition lawmakers, Asscher urged Rutte to reconsider the decision and to continue to let the tax exist in its current form. Given the revelations contained in the memos, “these 1.4 billion euros should be spent on the Dutch society. Scrap this measure. Don’t do this,” he said.

Geert Wilders, leader of the far-right anti-immigration Party for Freedom (PVV ), went one step further and called on Rutte and Wiebes to resign. He also threatened to table a vote of no confidence during the plenary debate if the two government lawmakers failed to announce their resignation during the meeting.

Rutte hadn’t begun his remarks at the time of publication.

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

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

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