Update: Introduction as per 2025 of tax on share buybacks

In our blog of December 6, 2023 we discussed that as a main rule share buybacks are subject to Dutch dividend withholding tax (DWT), but to date listed companies can benefit from a specific buyback facility. However, the Second Chamber of Parliament (Tweede Kamer) agreed to abolish this facility as a result of which a share buyback by a listed company will attract DWT starting in 2025. It was envisaged that the tax proceeds would be used to fund the costs of a higher minimum wage.

On December 19, 2023, the First Chamber of Parliament (Eerste Kamer) voted in favor of the proposal and therefore, based on the current legislation, the buyback facility will indeed end as of 2025. Interestingly, however, members of the First Chamber also adopted a motion based on which the government is requested to come up with an alternative proposal for covering the costs of a higher minimum wage in the Tax Plan 2025 and to retain the buyback facility. The reason is that the members of the First Chamber consider the buyback facility an important strategic instrument for listed companies and that neighboring countries have similar facilities or no dividend tax at all. In addition, the budgetary impact of the abolition is uncertain and the effect on the public finances could even be negative if one or more companies decided to leave the Netherlands following this abolition.

As a result, although formally the buyback facility ends as of 2025, in 2024 the government is expected to come up with alternative plans. Due to the recent elections the political parties are currently discussing which parties should form the new government. We therefore expect that only a new government (and not the current caretaker government) will come up with such an alternative proposal and that the contents and timing thereof will remain uncertain.

As described in our previous blog, each year listed companies request authorization from their shareholders to buy back shares. Such authorization is commonly drafted for on-exchange buybacks which may require revised wording with a view to the abolition of the buyback facility. Due to the uncertainty as regards timing and content of alternative proposals, companies should in our view still reconsider the language for the authorization with a view to the convocation of the AGM, likely in February/March 2024.