The crown jewel of the Dutch state budget, to wit: the abrogation of the dividend tax, has many benefits for big business. Companies like Shell and Unilever have lobbied for the current tax policy for quite some time, yet as with every prominent piece of legislation, it has a negative result as well, namely for the public real estate companies located in the Netherlands.
Currently RE funds operate as a so-called fbi (fiscal investment institution), yet the minister of finance has announced that certain aspects of this structure will be abolished in 2020, because of the new tax policy. The greatest benefit of the fbi structure is the fact that the funds doesn’t have to pay any company taxes if all the profits go to the shareholders. In 2020 the funds might have to start paying 21-22,5% in company taxes, instead of the 15% tax on dividends that the shareholders pay now. This will cause a per share loss in profits of 10-12%. Because of the loss in profits most proprietary and institutional investors – mostly pensions funds – will start investing in either private RE funds, or public RE funds located outside of the Netherlands. This, along with the fact that real estate funds outside of the country will start investing in Dutch real estate, and Dutch public funds will start investing outside of the Netherlands, will cause the Dutch real estate sector to become hollowed out. Although the new policy might have disastrous consequences for the Dutch economy, the government has judged the sector – consisting of offices, distribution centers and retail space worth around 6 billion euros – too small to make any exceptions. Chances of private real estate funds being malicious are much greater than the public funds, since the public funds need to present a quarterly report, and “have a long-term plan for their investments, as well as low debt, in contrast to private equity firms” according to the CEO of VastNed, Taco de Groot.
Another problem for the public real estate funds is the fact that they – unlike the private funds – can’t restructure their business to a fvr (fund for common account), which will give them more tax benefits. And although private funds are able to restructure, they are going to seek for other countries to go public in the future, as is currently the case with Orange Capital, says their CEO, Victor van Bommel.
Paradoxically, the entire reason for the tax policy was to enhance the business climate in the Netherlands, but besides all the economic effects, the policy doesn’t make any sense fiscally either. The proprietary investors are able to get part of their dividend taxes back in the current system, and the pension funds don’t have to pay any dividend taxes.
Moreover, the fbi structure (installed in 1969) was the first fiscally transparent structure in the entire world, and the more popular international REITS (real estate investment trusts) are based on the Dutch fbi concept. Albeit the Dutch were on the frontiers of this development, the government is now amending it into a structure that gives public funds a disadvantaged position against international funds, and Dutch private real estate funds. Because analysts are doubtful about the future of public real estate funds in the Netherlands, the stocks of major funds like NSI – which almost exclusively invests in Dutch real estate – and Unibail-Rodamco have experienced a great decline in the previous year.
Major public real estate funds like Wereldhave, VastNed, WDP, NSI, Unibail-Rodamco and Triodos real estate fund have put their heads together and are trying to lobby – sadly too late, and still without any success – with the government, and have written an open letter, explaining the situation and asking merely one thing: “Please let us pay dividend taxes”.
By Sebastian Cornielje