Dozens involved in large-scale dividend fraud costing €26 billion in missed taxes

The Public Prosecution Service (OM) believes that dozens of people and institutions were involved in large-scale “dividend stripping” that cost the Tax Authority 26 billion euros in missed taxes since 2000. The first Dutch suspect, 53-year-old Frank V., was arrested early this month after years of investigation.

“The scope is really large, almost commercial. We think this is a serious form of organized white-collared crime,” Chief Public Prosecutor Michiel Zwinkels told NOS. “We have seen in our investigations that the suspects received assistance from banks, advisers, and accountants. Our investigation also focuses on that. We think dozens, possibly hundreds of people may have been involved.”

Zwinkels called on those involved to turn themselves in. Anyone willing to talk to the authorities may be eligible for reduced sentences. The OM hopes to better understand how the complex constructions were put together.

Dividend stripping is fraud with the tax shareholders of listed companies pay on the profit distribution on their shares, their dividends. That tax is 15 percent in the Netherlands. Some shareholders are entitled to a refund of dividend tax, for example, because they live abroad. By briefly selling or lending shares to foreign investors around dividend day, traders can reclaim their dividend tax from the tax authorities even though they aren’t entitled to a refund.

The OM suspects Frank V., who was arrested on June 6 and released on bail last Friday, of leading the criminal organization that helped people fill in their dividend tax returns fraudulently. According to NOS, V. allegedly started applying dividend stripping on a large scale when he worked at the bank Fortis Nederland early this century, also making millions for the bank. Fortis Nederland later merged into ABN Amro, which the OM is also investigating.

So far, the OM’s investigation showed hundreds of millions of euros in tax money disappearing into the suspects’ pockets. But according to Zwinkels, the damage is likely much larger. Research by the German University of Mannheim and research network Corrective shows that the Dutch Tax Authority has lost 26 billion euros to this fraud. In the whole of Europe and the United States, the damage is estimated at 147 billion euros.

“It is an international investigation. We also work with other countries,” Zwinkels told NOS. “In Germany, there are thousands of suspects.”

Last year, the government announced a planned bill to stop dividend stripping. The involved Ministers are expected to present their legislative amendments this fall. But Zwinkels is not optimistic that a law change will prevent this fraud. “It is an illusion to think it will not happen again,” he said. “Even under current tax legislation, it is against the anti-abuse provisions to strip dividends in this way.”