The Dutch government intends to introduce measures to (better) curb dividend stripping with respect to portfolio shares. Recently, the Dutch government started an online consultation round, to provide an opportunity for interested parties to give their opinion on the possible measures to reach this goal. Nine reactions were published, among them letters from leading industry and consultancy associations as well as leading pension investors.
In the consultation, the government presented six alternatives, on which it wanted to hear the opinion of the public:
The measures should meet the following (pre) conditions:
The interested parties differ in their comments, which is of course in part due to their different backgrounds, but some similarities in opinion can be discerned from the comment letters. Clearly, alternatives A and B are not favoured, as they are seen as unworkable and / or ineffective. The same is more or less the case with respect to alternative C, which is seen as very complex, too broad, disruptive in the market, unworkable.
The commenting parties mainly found that the alternatives D, E and F will not be effective as stand-alone measures. Only in combination with other measures they might be effective, but it will depend on the combination.
Overall, not one of the six alternatives seems fit to reach the goal set by the government. Maybe there are more workable alternatives. The Dutch Association of Tax Advisors made some practical suggestions in that respect:
It is understandable that tax authorities want to eradicate ‘real’ dividend stripping activities, where transactions are implemented with the sole goal of achieving a tax advantage. However, there are many instances where a transaction - that could be seen as a potential dividend stripping - is in fact based on a substantive business transaction and the tax effect is just a consequence and not the goal of the business transaction.
The current financial system and financial transactions are complex and diverse. But this has the effect that many measures to challenge dividend stripping can be disruptive and interfering with real business transactions and may damage the financial system. In our view, this means that it would be preferable that measures against dividend stripping are taken on an EU or on a global (OECD) level. The net result of anti-dividend stripping rules may be negative if they cause more damage than the loss of tax-revenue through dividend stripping is worth. Hopefully, the Dutch government will strive for an international solution that is both effective and causes minimal harm to bona-fide transactions involving portfolio shares. We will, of course, be closely monitoring the developments with respect to this issue.
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