Research: State treasury loses €2 billion annually

‘This research shows once again that a revision of our tax system is sorely needed. While our healthcare, education and safety are under pressure, investors and listed companies are simply given money as a gift with this exemption’, says Petra Bolster, member of the executive board of the FNV.

Buying back own shares is currently the way for listed companies to pay out tax-free money to shareholders. This profit distribution is tax-free in the Netherlands. ‘The FNV has been advocating for a revision of our tax system for years, which is why we entered into a partnership with SOMO’, says Bolster. ‘It shouldn’t matter how you earn your money, everyone pays the same percentage of tax. And the strongest shoulders should bear the heaviest burden. It is possible, there is enough money in the Netherlands. It is time that companies also contribute their fair share to a healthy and liveable Netherlands. Our public facilities are a prerequisite for a strong and therefore sustainable economy’, says Bolster.

The calculations behind the research

The CPB and the Ministry of Finance previously calculated that the state treasury would lose 800 million euros annually if the tax on the purchase of own shares were abolished. This calculation was based on annual totals, a dataset provided by the Financieele Dagblad. These data were the best available at the time, but not specific enough to make an accurate estimate of the origin of the shareholders. This information is crucial to make an accurate calculation of (the loss of) income for the state treasury. The new SOMO study largely uses the same methodology as that of the CPB and the Ministry of Finance, but with more detailed data that show that this tax could yield at least 2 billion euros per year.

Foreign investors benefit

For this recalculation, SOMO has built up a dataset of companies that buy back shares in the Netherlands and are also liable for tax here. The origin of major shareholders has also been analysed for each company, which allowed a better estimate to be made of how much additional income this tax would lead to. It appears that these companies have significantly more foreign shareholders, on average 79%, who benefit from this tax exemption.

2 billion euros per year seems like a lower limit

It is conceivable that the lost revenues will be even higher, given all the tax benefits for companies in the Netherlands. Companies that have little material ties to the Netherlands also enjoy the opportunity to shift income from royalties, dividends and interest from foreign entities in a tax-efficient manner. The research shows that the amount of 2.0 billion per year is a lower limit, and can increase to 2.9 billion per year. ‘Large listed companies in particular use share buybacks to avoid dividend tax. For example, ING paid out more than 3.5 billion euros tax-free to its shareholders in 2023’, says Rodrigo Fernandez of SOMO.

You can read the full report on the SOMO website.