These are two minor changes to the articles of association that the shareholders of chemical group OCI will vote on this Thursday afternoon in Hotel Park Centraal in Amsterdam. First, the capital of the company listed on the Amsterdam stock exchange is formally increased by 2.7 billion euros, a minute later the capital is reduced by the same amount. In this way, 2.7 billion euros can be paid out to shareholders in one fell swoop. Tax free.
It is not the first time that OCI – market leader in fertilizer and the world’s largest producer of the plastic melamine – has done this. If the shareholders agree to the amendments to the articles of association on Thursday, a total of 5 billion euros have been paid out tax-free to the shareholders through this construction over the last three years. Because the same thing happened in 2022 and 2023. As a result, the Dutch Tax Authorities will miss out on dividend tax of 750 million euros.
The question is whether this is not simply OCI’s profit, which the chemical company distributes to the shareholders, and which should therefore be taxed.
“Yes, that is the question,” says Jan van de Streek, professor of tax law at the University of Leiden. “You would say it is a profit. If it walks like a duck, talks like a duck, taxes it like a duck. But because of the opportunity offered by the law, you stick the label ‘capital’ on it and then suddenly it is no longer a profit. Anyone who wants to tackle this must change the law.”
A spokesperson for the Ministry of Finance says the department is investigating how many companies distribute tax-free capital to shareholders in this way and whether anything should be done about it. “We hope to complete this in the coming months and then we will inform the House of Representatives. It is our priority.”
Previously, the companies AkzoNobel, TomTom and Ahold, among others, made use of the capital return. For example, in 2019, AkzoNobel paid shareholders 2 billion euros tax-free after the sale of a business unit had generated a significant profit. Navigation software company TomTom transferred around 750 million euros tax-free to shareholders that year.
‘Not really ethical’
The required amendment to the articles of association at OCI has been prepared by the advisors of the law firm De Brauw Blackstone Westbroek. The proposal fits on four A4 pages. And small investors have been looking forward to it on financial internet forums for weeks.
For example, an investor with the alias Kruimeldief wrote on IEX in February that the company had previously pulled off this “trick”, “with the help of a smart notary office”. Another investor responds that he does not really think it is “ethical”, but that there is nothing “legally” to object to it. “The State, so you and I, is missing out on a lot of taxes because of this, which mainly benefits the richest family in Egypt.”
That family is the Sawiris family, majority shareholder of OCI. 63-year-old Nassef Sawiris is chairman of the chemical group, which has factories in Geleen and Delfzijl, and a terminal in the port of Rotterdam. With an estimated fortune of 8.1 billion euros, he is the richest man in Egypt.
Nassef Sawiris is one of the three sons of Onsi Sawiris, who laid the foundation for the family empire with a construction company in the 1950s. Nassef is now active in all kinds of sectors. For example, he invested in the English football club Aston Villa and has a significant interest in sporting goods company Adidas.
In recent years, Sawiris has been restructuring OCI. He sells business units. This earns him a large profit, which he then distributes to the company’s shareholders – including him and his family members. Companies usually pay out their profits in the form of dividends, on which shareholders must then pay tax. In the Netherlands, the dividend tax is 15 percent.
‘It is allowed, it is the law’
At the same time, Dutch law offers opportunities to pay out profit in the form of capital to shareholders tax-free, says Professor Van de Streek. “It’s just allowed. It’s in the law. So you cannot even say that unwanted use of the tax options is being made here.”
All that needs to happen is that the shareholders agree to an amendment to the articles of association in which this capital return is regulated. Capital may always be returned to shareholders tax-free. Van de Streek: “That is based on the idea that the money you put into a company, and with which it then goes to work and possibly makes a profit, was already yours. And you don’t have to pay tax on something that was already yours.”
In December last year, OCI sold Fertiglobe, a fertilizer manufacturer headquartered in Abu Dhabi, for $3.62 billion. The flag went up among investors. It was immediately clear that OCI wanted to return a large part of that proceeds as capital to the shareholders.
And that is what the advisors of De Brauw Blackstone Westbroek have put in a fiscal guise in two proposals. The first amendment to the articles of association increases the nominal value of OCI shares, increasing OCI’s authorized share capital by 2.7 billion euros; from 12 million euros to 2.712 billion euros. The 2.7 billion comes from the company’s reserves. And with a second amendment to the articles of association, the nominal value is reduced again by 2.7 billion euros, so that the share capital is again 12 million euros.
This action converted OCI’s reserve into capital, which can then be paid out tax-free to shareholders. They will receive 2.7 billion euros, of which 1.4 billion euros will go to major shareholder Nassef Sawiris and his family. That amount can be transferred tax-free via his letterbox company in Cyprus to one of his firms in the Cayman Islands, a tax haven that is on the European blacklist of countries that facilitate tax avoidance and evasion.
Tax structures
NRC In recent months, he has described in various articles how wealthy individuals and entrepreneurs use tax structures that are out of reach for average taxpayers. In February, NRC explained how wealthy families – such as Bavaria owners Swinkels and Van Oord, of the dredging company of the same name – managed to expand the business succession scheme to their advantage.
Another article showed how two expat managers of bargain chain Action managed to collect almost 50 million euros tax-free. They used a shortcut in the tax legislation for expats, so that they did not have to declare the profits on their Action shares in the Netherlands.
And at the beginning of April, NRC revealed how the richest woman in the Netherlands, Charlene de Carvalho-Heineken, avoids dividend tax in the Netherlands. She too did this, just like the Sawiris family, by increasing and decreasing share capital, and then transferring the money tax-free to a tax haven.
In the discussion that followed, a reconstruction by the NOS showed that the government already had a plan in 2018 to prevent profit distributions from going to tax havens without tax. Part of that measure was that the tax-free return of capital was also banned if the company also had profit reserves at that time. But the plan fell through.
Member of Parliament Senna Maatoug (GroenLinks-PvdA) wants the cabinet to take action now: “The dividend tax is as leaky as a basket. The Dutch government allows the internationally wealthy to buy up companies here, set up structures and pay almost no taxes. That has to stop.”
A spokesperson for OCI declined to comment substantively.
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