Share buybacks are a common way for listed companies to return excess cash to shareholders. It enhances earnings per share, lowers excess equity and cash and rightsizes the capital structure. Although as a main rule share buybacks are subject to Dutch dividend withholding tax (DWT), to date listed companies can benefit from a specific buyback facility. This facility allows a Dutch listed company to buy back shares free of DWT subject to certain restrictions.
However, in light of the parliamentary debates with respect to the State budget for 2024, 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. This significantly impacts the tax efficiency and attractiveness of share buybacks, both for the company and its shareholders.
Currently, the First Chamber of Parliament (Eerste Kamer) still has to vote on this. However, unlike the Second Chamber of Parliament, the First Chamber of Parliament has no right of amendment and can only adopt or reject the legislative proposals. There is also no opposition to the plan in the First Chamber, which means that companies should prepare for the likely abolition of the buyback facility.
In our full analysis we discuss some alternatives to a straightforward on-exchange share buyback. Although the new regime starts only in 2025, companies should consider this now as they may need to put in place the necessary shareholder authorisations at the 2024 AGM. Our aim is to help you understand the implications of the new rules and to help you decide on the way forward.
