Former HOOPP employee reaches settlement in Netherlands tax case

A former Healthcare of Ontario Pension Plan employee will pay a maximum fine of €486,000 ($779,000) to settle his role in an investigation by Dutch prosecutors who allege the pension fund evaded more than €200-million ($321-million) of taxes.

The prosecutors issued a “punishment order” that the former employee is not contesting, and did not name him. He is described as a 57-year-old man who worked as a trader, executing transactions in shares of Dutch-listed companies for HOOPP.

Last October, the Netherlands Public Prosecution Service summoned HOOPP to a criminal court on a suspicion that the pension plan wrongly claimed refunds on dividend tax withheld between 2013 and 2018.

The heart of the dispute is a trading strategy HOOPP used that was designed to take advantage of the pension fund’s favourable tax status in the Netherlands.

Dutch authorities have alleged the pension fund used sophisticated contracts with counterparties to exploit its tax status for financial gain.

The prosecutors said in a statement that the former employee “knowingly accepted the significant risk” that the refund claims HOOPP submitted were incorrect. But they also said he had an “operational role” and “bore no ultimate responsibility for tax matters within the pension fund.”

The criminal prosecution of HOOPP is still continuing, and the pension fund is disputing the allegations.

“The announcement by prosecutors in the Netherlands concerning a former employee does not impact HOOPP’s decision to vigorously defend itself,” HOOPP spokesperson Scott White said in a statement.

“This issue continues to be a dispute over the interpretation of a discrete Dutch tax provision, which HOOPP believes should be solely adjudicated by a tax court. These allegations will have no impact on HOOPP’s ability to pay pensions to our members today or in the future.”

The criminal proceeding in the Netherlands follows a long-running civil case in a Dutch tax court over the same trading strategy. In January, a Dutch tax court ruled that HOOPP wrongly claimed nearly €214-million ($343-million).

HOOPP is appealing that decision and denies any wrongdoing.

At issue in both the civil and criminal proceedings is whether HOOPP met the test to be considered the beneficial owners of shares that the plan traded on the Dutch stock exchange.

In 2013, HOOPP started using a strategy to buy foreign stocks before dividends were due to be paid, receive the dividends, sell the shares to a bank shortly after collecting those payments and hedge the risk of changes in the share price in the meantime, Dutch authorities allege.

HOOPP would then keep a small percentage of the dividend and pay the remainder to the bank, claiming a refund on withholding tax, according to the allegations.

HOOPP said it purchased the shares “over the counter through brokers” and there was no contractual link between the transactions, according to court filings.