The Public Prosecution Service (OM) imposes a fine of a total of 101 million euros on two Morgan Stanley (MS) companies in London and Amsterdam for dividend tax evasion. The total amount of these penalty orders approaches the legal maximum. This amount is in addition to the tax owed, which Morgan Stanley paid to the Tax Authorities at the end of 2024 with interest.
Anyone who owns Dutch shares and receives dividends (profits) on those shares is confronted with Dutch dividend tax. The law, as in many other countries, distinguishes between domestic and foreign dividend recipients. In the Netherlands, domestic recipients of dividends have the right to compensate for that dividend tax. This can be done by offsetting or reclaiming the dividend tax from the Tax Authorities. According to Dutch law, domestic recipients only have this right if they are the ultimate beneficiaries of those dividends.
The OM believes that MS 2013 through a specially established structure 2013 ensured that parties who had no right to offset or reclaim dividend tax nevertheless wrongly benefited from part of the offset dividend tax.
Based on research by the FIOD, under the leadership of the OM, the OM established that MS founded the Dutch company Morgan Stanley Derivative Products (Netherlands) BV (MSDPN) in 2006 for this purpose. This company subsequently acquired Dutch listed shares in the period from 2007 to 2012, but only held them briefly around dividend dates (while lending them to other parties between those dates). In total, 830 million euros in dividends were paid on those shares during the brief ownership periods. MSDPN offset the withheld dividend tax of a total of 124 million euros in five corporate tax returns during 2009-2013.
The OM believes that MSDPN was not entitled to this under the law. Through closely coordinated share and derivative structures, an average of 90% of the dividends received by MSDPN automatically flowed across the border via Morgan Stanley & Co International Plc (MSIP) to underlying financial institutions, which the OM believes, based on the FIOD investigation, were not entitled to compensation themselves. As a result, MS was involved in dividend tax evasion according to the OM and committed the intentional submission of incorrect tax returns.
Tax audit and criminal investigation
At the end of 2010, the Tax Authorities discovered the transactions and began asking questions. This resulted in a years-long tax audit and tax procedure. After additional fact-finding by the FIOD, full insight into the facts was gained for the first time, revealing a closed circular structure.
OM imposes penalty orders on MS
Earlier this year, the OM announced it would summon MS. However, just before the start of the criminal trial, MS agreed to accept fines totaling 101 million euros in the form of OM penalty orders imposed on the two companies. This established the banks guilt regarding the prohibited conduct by the OM.
The OM finds the penalty orders appropriate because the criminal court can only impose a fine on legal entities if they are found guilty. The case can now be closed regarding these two companies.
