Romney Avoids $100 Million in Dividend Taxes via Foreign Route

On Nov. 5, 2012, De Volkrant ran an article about how Mitt Romney avoided $100 million in dividend taxes through a private equity fund in The Netherlands. Here is the Volkskrant story. A longer version of the story originally appeared at Follow the Money. Below is a translation (posted with permission of Follow the Money). Thanks to John Sinteur, blogger at The Daily Irrelevant (and author of the iPhone app above), for the translation.

The offshore fiscal routes Mitt Romney uses also go through The Netherlands. The private equity fund Bain Capital, in which the presidential candidate participates, uses the Dutch route to evade about 80 million euro ($102 million) of taxes on dividends.

Presidential candidate Mitt Romney profits from the fiscal route the private equity fund Bain Capital uses via the Netherlands. For the American Bain, founded by Romney, the Netherlands is a part of the large network of international holding companies and trust funds.

By routing his investment in 2004 in the Irish pharmaceutical company Warner Chilcott through the Netherlands, Bain manages to evade dividends and capital gains taxes. Since the shares have been kept in the Netherlands, about $389 million in dividends have been paid, and Bain has sold shares for about $334 million in Warner Chilcott shares.

This has been found out by Follow the Money for the Dutch newspaper De Volkskrant, by looking at documents sent to the SEC, by studying tax return forms submitted by Romney, by studying confidential Bain documents leaked by the techblog Gawker, and by data from the Dutch Chamber of Commerce.

80 Million Euros

According to fiscal specialist Jos Peters, who works as an advisor to large private equity funds, Bain used the Dutch route to evade about 80 million Euro tax on dividends. "Bain also won't have to pay a lot of Irish capital gains taxes when they sell the shares", Peters says. Neither Bain, nor the Romney campain has responded to repeated requests for a reaction.

Although Romney left Bain in 1999, he remained as a participant. As such he invested, with his wife Ann Romney, in the Bain Capital Fund VIII in 2004. This fund, registered in the Cayman Islands, has a large stake in Warner Chilcott. Out of the 37.5 million shares owned by Bain in september 2010, 25.7 million are owned by Bain Capital Fund VIII

Romney mentions in his 'public financial disclosure report' that his shares in Bain Capital Fun VIII are worth "more than a million". Tax returns by Romney and his wife show that in 2010 and 2011 they received about 2.04 million dollar in dividends from the fund. Their shares gained in value about 5.5 million dollar in the same period.

Romney receives part of the large returns by the Bain Capital Fund VIII in the form of shares. On March 10, 2011, Romney donated 19,799 shares of Warner Chilcott (valued at about $450,000) to his son's non-profit, the Tyler Foundation. By doing this Romney did not have to pay taxes in the USA. Gifts in the form of shares to dedicated non-profit organisations are exempt from capital gains taxes. The gift is also a deductible on his own tax returns.

389 Million Dollars

Since 2010 Bain Capital has parked the shares owned in Warner Chilcott in a Dutch holding. From the start, large payments to Bain Capital have been made. Warner Chilcott paid 389 million dollar in dividends in august 2010. Bain also sold 334 million dollar worth of shares in Warner Chilcott.

By using a a so called participants deduction in the Netherlands and Luxembourg, Bain avoids tax on dividends and capital gains and routes the proceeds of the shares in the Cayman Islands. The participants deduction means that profit from a share ownership worth more than 5% of a company is not taxed in the Netherlands. Because of this rule the Netherlands is a popular place for holding companies in multinationals and financial funds. "We are world champion in participants deductions," says Jos Peters, a tax expert at Merlyn.

Romney has been fielding critical questions by the press and opponents for several months now in the USA about the amount of taxes he pays. In September Romney was pressured to publish information about his tax returns. It was already known that he profits from ingenieus tax constructions via the Cayman Islands, Bermuda and Luxembourg

The Netherlands so far was not on that list, but it now appears it should have been listed. The Netherlands as a tax evasion route were mentioned earlier in the news about the US coffee company Starbucks, causing much consternation in the U.K.