Dutch tax loophole for stock buybacks costs treasury billions, study finds

A tax exemption allowing companies to avoid dividend tax through stock buybacks is far larger than previously estimated, new research shows. Abolishing the exemption could generate at least 2.2 billion euros annually for the Dutch treasury, according to a study by the Center for Research on Multinational Corporations (SOMO). That is more than double the 1 billion euros annual cost estimated by the Central Planning Bureau (CPB).

The CPB, a key government advisory body, assumed stock buybacks were occasional, occurring mainly during strong economic periods or when companies had surplus profits. SOMO’s research shows otherwise: buybacks have become a structural practice among publicly listed companies. In 2021–2024, Dutch firms spent 102 billion euros on repurchasing their own shares—more than French or German companies.

“Board members increasingly receive bonuses linked to earnings per share, creating a direct incentive to repurchase shares,” SOMO noted. “This makes stock buybacks a recurring strategy, not an occasional maneuver.”

The CPB also assumed that half of shareholders are foreign. SOMO reports the proportion is significantly higher. This matters because the exemption primarily benefits foreign investors, allowing substantial amounts of dividend tax to be avoided.

In 2023, the Tweede Kamer approved a proposal to eliminate this tax advantage for foreign shareholders, intending to use the revenue to increase the minimum wage and child benefits. The following year, however, the new cabinet opted to maintain the exemption.

According to SOMO’s analysis of election program calculations, most Dutch political parties, including VVD, CDA, and D66, support keeping the exemption. Only GroenLinks-PvdA, ChristenUnie, and Volt advocate its removal.

Other countries have already acted to curb similar practices. Since 2023, the United States imposes a 1 percent tax on stock buybacks. France introduced an 8 percent levy this year on companies with revenue exceeding 1 billion euros. Switzerland has taxed buybacks since 1997.