Dutch Drop Dividend Tax Plan After Unilever's U.K. Decision

(Bloomberg) -- Dutch Prime Minister Mark Rutte abandoned a proposal to end a dividend-withholding tax, in an about-face triggered by Unilever’s decision to forgo a plan to consolidate its headquarters in the Netherlands.

Rutte ditched the dividend tax proposal a little over a week after saying his government would reconsider the measure. Abolishing the dividend tax would have cost Dutch state coffers 1.9 billion euros ($2.2 billion). Nixing it means Rutte faces an embarrassment of riches, which he aims to spend on tax measures to keep the Netherlands attractive to businesses. Opposition parties have demanded more spending to benefit locals.

His four-party cabinet will seek to improve the business environment in the Netherlands, Rutte said in The Hague on Monday in comments broadcast by public broadcaster NOS. New plans announced by the Dutch government include proposals to cut the top corporate tax rate to 20.5 percent in 2021 and the lower corporate tax rate to 15 percent, according to a letter from Deputy Finance minister Menno Snel to the lower house of parliament. Both tax rates will be lowered more than previously announced.

The Dutch cabinet also proposed a “transition right” for people who’d face an end to the so-called 30 percent rule, which exempts 30 percent of an expat’s salary from income tax, in 2019 or 2020.

“We have looked for a good package for the business sector that has more support, which both meets the investment climate and the business climate and is aimed at the large business community and the smaller business community," Rutte, 51, said.

Unilever Blow

The decision to withdraw his proposal to end the country’s dividend tax came after Unilever announced on Oct. 5 that it had decided to abandon its plan for a single headquarters in Rotterdam. It had instead ruled to keep one of its headquarters in the U.K. The Anglo-Dutch giant had originally tabled the proposal in March, saying a single Rotterdam base would give the company more flexibility to “undertake major M&A.”

Just hours after the company’s announcement to not follow through on the single-headquarters plan, Rutte said he would reconsider his package of tax measures for companies, including ending the dividend tax.

The decision by the maker of Dove soap and Ben & Jerry’s ice cream was a blow to Rutte after the third-time prime minister -- and former Unilever employee -- had repeatedly said that ending the dividend tax was aimed at making the country attractive to multinationals like Unilever.

On Monday, he acknowledged that Unilever’s decision meant an “important test case of the success for such an important measure” didn’t go well.

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Opposition parties, from Geert Wilders’ anti-islam party PVV to the Greens, had rejected Rutte’s plan to end the dividend tax , saying the measure was nothing more than a gift to multinationals. Only 16 percent of the Dutch were in favor of ending the tax, which they said would help large companies at the expense of ordinary citizens.

Sticking to the dividend tax proposal has played a part in hurting the popularity of Rutte’s cabinet. An Oct. 14 survey conducted by Maurice de Hond showed a significant decline in support, with the poll giving the combination of the four parties in government only 50 seats in the 150-seat lower house, a drop from the 76 they currently hold in parliament.

The next big electoral test for Rutte and his Dutch government will come in March of next year, when voters head to the booths in the country’s 12 provinces, with members of the provincial councils picking the members of the 75-seat Senate. Rutte’s cabinet only has a majority of one seat in both houses of parliament.

©2018 Bloomberg L.P.