Morgan Stanley Agrees to Record €101 Million Fine for Wrongful Dividend Tax Reclaim

In a last-ditch effort to avoid criminal proceedings, Morgan Stanley A €101 million penalty order issued by the Public Prosecution Service has been accepted. This represents the American investment bank's admission of its involvement in so-called "dividend stripping," the wrongful recovery of dividend tax. The penalty order is the largest ever issued by the Public Prosecution Service to a financial institution.

Timing of the penalty order

The timing of the penalty order is noteworthy. The summons had already been prepared and hearing dates had been set. By agreeing to the sentence, the sofa managed to avoid a public trial. Nevertheless, the financial impact is significant. On top of the €101 million fine, Morgan Stanley will have already repaid an additional €200 million in taxes to the tax authorities by the end of 2024, bringing the total cost of this case to over €300 million.

The case surrounding dividend stripping

The case revolves around transactions that took place between 2007 and 2012. According to the Public Prosecution Service, Morgan Stanley set up a structure through its Dutch subsidiary, Morgan Stanley Derivative Products (MSDPN). MSDPN purchased large blocks of shares in Dutch listed companies and held them for only a few days, around the dividend payment date. Because MSDPN is a Dutch entity, it could offset the withheld dividend tax with the tax authorities. However, an investigation by the Fiscal Information and Investigation Service (FIOD) revealed that MSDPN primarily acted as a conduit, with approximately 90% of the dividends going directly to the London office and other foreign parties. These parties themselves were not entitled to tax refunds.

A penalty order, not a settlement

Legally, there's an important distinction. This isn't a "settlement" where parties mutually agree on a sum without explicitly acknowledging guilt. It's a penalty order, a unilateral imposition of a penalty by the Public Prosecution Service, formally establishing the bank's guilt. This more severe measure emphasizes the seriousness of the offenses. With this penalty order, the Netherlands is joining the European trend of severely punishing dividend stripping.