Ferrovial warns of the risk of an exit tax if it wanted to take the Netherlands headquarters

Ferrovial aspires to benefit from tax exemptions in Spain in the merger with which it moved the headquarters of the group's headquarters to the Netherlands. However, it now runs the risk of having to face an “exit tax” in the future if it decides to move its headquarters from that country, as it warns in the prospectus it has registered with the United States Securities and Exchange Commission. (the SEC) to go public on the Nasdaq. The law that would establish this barrier to transfer is still being processed, has undergone drafting changes and in principle would not affect a change of headquarters to another country in the European Union.

Netherlands had its own Ferrovial case with Unilever. The company historically maintained a dual headquarters for its businesses in the United Kingdom and the Netherlands, a vestige of the merger of the Dutch Margarine Unie and the British soap group Lever Brothers. It decided to simplify its structure and initially planned to unify its headquarters in Rotterdam in 2018 due to Brexit, but canceled those plans after the Dutch Government decided to maintain a 15% withholding on dividends. That raised a storm in the country and the response was the processing of a law to impose an exit tax on companies that moved their headquarters from the country in certain cases.

Unilever even acknowledged in 2020 that it would reverse the operation if it had to face the multimillion-dollar burden it would have entailed. “If the bill were enacted in its current form, the councils believe that proceeding with unification, if it resulted in an exit tax burden of around €11 billion, would not be in the best interests of Unilever,” he then told his shareholders. The standard was not approved at the time and Unilever completed its unification in London that same year.

The legislative proposal for an exit tax, however, is still alive, as described by Ferrovial in its brochure. “Under a bill currently pending before the Dutch Parliament, the DWT Exit Tax, the company will be deemed to have distributed an amount equal to its entire market capitalization less the paid-up capital recognized immediately before certain events occur. events, including if the company ceases to be a Dutch tax resident for the purposes of a tax treaty concluded by the Netherlands with another jurisdiction and becomes, for the purposes of that tax treaty, an exclusive tax resident of that other jurisdiction, which is the 'enabled jurisdiction,' he explains in the complex language that usually accompanies writings to regulators, even more so when they refer to tax matters.

This kind of multimillion-dollar fictitious dividend (in the case of Ferrovial it could be estimated at more than 20,000 million euros) would be subject to a 15% withholding. Ferrovial explains that this other jurisdiction to which the tax domicile would be moved for the exit tax to be applied must be different from a Member State of the European Union and the European Economic Area and that does not impose a withholding tax on the distributions of dividends, or that facilitates equivalent tax incentives. It would have fully affected Unilever's case at the time, but it could also condition Ferrovial in the future if it wanted to move, for example, to the United Kingdom or another country that is not a member of the European Union.

“The DWT Exit Tax has been amended several times since its initial proposal and is currently being debated. Therefore, it is not certain whether the DWT Exit Tax will be enacted and, if so, in what form. If enacted in its current form, the DWT Exit Tax will have retroactive effect as of December 8, 2021,” explains the company chaired by Rafael del Pino.

Ferrovial has defended from the beginning that it is not moving to the Netherlands for tax reasons, although it admits the risk that the Spanish tax authorities will not recognize it as such. The main difference between Spanish and Dutch taxation on profits is the exemption of dividends from investees, which in the Netherlands is total and in Spain 95%. If the Treasury concludes that the merger through which the transfer to the Netherlands was implemented did not take place for a valid business reason, but rather with the main intention of obtaining a tax advantage, it could deny the tax exemption regime to which Ferrovial wants to benefit.

In that case, the treasury could tax the capital gains realized, that is, the difference between the fair value of the assets not assigned to a branch in Spain and their previous tax value. Ferrovial believes that the impact would be relatively small in any case, since it would affect only 5% of the capital gains realized and the 25% rate of Corporate Tax. In addition, the tax bill would be reduced by Ferrovial's compensable losses and deductible expenses, including financial expenses and outstanding tax credits. Even so, he admits that although this is not his central scenario, it could “involve a significant additional cost.”

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