Still no clarity about reason to elimate dividend tax

Edition 29 May 2018, by Marla Thomson

Going back to the weeks and months of the formation of the current Dutch government, the discussion abolishing the dividend tax on foreign companies operating in The Netherlands happened behind closed doors in private meetings with the leaders of what would become the Rutte III government. Only when Prime Minister Rutte presented his aggressive tax plan for 2018 in the final quarter of 2017 did opposition members of Parliament realize this tax was on the cutting board. Answering how and why Rutte was proposing its dismissal became the catalyst to an ongoing scandal that seems to have no end in sight.

The tax itself is controversial at best. Imposing such a tax on foreign companies is good for the host country with a steady influx of foreign capital to reinvest. It also imposes the same taxable earnings obligations that domestic companies have. Countries who impose such taxes are also seen as combatants of the global trend of corporate tax avoidance; countries without the dividend tax are often seen as tax havens, which can have negative connotations. But for larger corporations looking to establish themselves in another country, those countries with hefty price tags in the form of dividend taxes might not make the short list of possible new headquarters.

When Prime Minister Rutte introduced his tax plan to Parliament, the dividend tax was noticeably absent. Discussions surrounding the formation of the government and supporting documents are usually public records; however, there were no such records or documents of these discussions. What the government did secretly have was a party document drafted by Eric Wiebes, then State Secretary for Finance and current Minister of Economic Affairs, stating that several large corporation were moving their headquarters from The Netherlands because of the dividend tax. This document was used by Prime Minister Rutte in the coalition government discussions in behindthe- scenes meetings with party leaders to convince them of its end.

When Rutte proposed his tax plan in Autumn 2017, members of the opposition parties asked for justification for the abolishing the tax. The government stated that several companies wanted to move their headquarters elsewhere to avoid this financial burden, thus putting jobs for Dutch citizens at stake. When asked to name the companies in question, the government refused to give their names. Publicly releasing clandestine information would jeopardize the ability to effectively run the country, Rutte said. The opposition argued that not being transparent would damage the credibility of government, not to mention that ending the tax would cut out 1.4 billion Euros in revenue each year and a decision so impactful should be taken with more discussion and scrutiny.

The dividend tax reform amendment did come into force late December 2017; however, the controversy and scandal around it continues through spring of 2018. In April, members of the opposition party and researchers from the University of Amsterdam requested information and documents regarding the dividend tax discussions, since nothing appeared in the public records. Memos may have been drafted, said members of the coalition parties, but no one could recall having seen them. Misinformation, denials and “smokescreens” as Henk Nijboer, Labour Party member, calls it. The existence of documents, party memos and research by The Netherlands Bureau for Economic Policy Analysis was recently revealed. These documents raise serious doubts as to the dividend tax having any significant impact on a company’s decision to trade in a certain country or not. The spotlight seems to be back on Minister Wiebes and the party document he authored as a part of the the Rutte III government formation. The Wiebes document contradicted the Bureau’s findings and seems to have put forth evidence in a way that substantiates the argument to remove the tax.

After a myriad of scandals and controversial policy changes, the Rutte III government seems to maintaining this chaotic trend with the the lead-up to the dividend tax debacle. Despite all the noise the scandal itself is making, one might ask: if there is no data to support needing to remove this tax to keep large companies’ headquarters in the kingdom, then why get rid of it? And why, Mr. Rutte, all the secrecy? The handling of this scandal only begets more questions. Mr. Rutte, I hope you have answers.