THE HAGUE, 04/05/07 - The tax service wants to tackle own shares buybacks via a so-called second window. A transaction carried out by ABN Amro Bank for telecom company KPN and chip machine maker ASML will serve as test case, Het Financieele Dagblad reported yesterday.

Most companies in the Netherlands can buy back their own shares on the bourse tax-free. Companies that do not meet the requirements for this tax exemption take an alternative route. They buy the shares back via a bank, which retains the dividend withholding tax. The bank pays back the withholding tax later.

The tax service is now investigating whether the construction is, legally speaking, set up to evade tax. In that case, the tax payback will be forbidden, according to the newspaper.

ABN Amro has carried out such disputed buyback transactions for KPN and ASML. The bank threatens to lose 300 million euros if the tax service succeeds in its plan. This is 25 percent of a total amount of 1.2 billion euros.

The threatened move is also braking the buyback of 1.63 billion euros that electronics concern Philips was having executed via the 'second window.' Philips announced the buyback in January, but the bank carrying it out - again ABN Amro - has to date only carried out a fraction of the planned transactions due to uncertainties about the outcome of the tax service investigation.

Het Financieele Dagblad noted that tax experts point out that if the tax service gets its way, the financial blow does not have to fall exclusively on the bank. Depending on the agreements made, part could fall on the company giving the order.

If the tax service decides to fight the constructions in court, the case will without doubt be fought out up to the highest courts. "That will take us some three years further," said an expert in Het Financieele Dagblad. "You can hope that the tax service indicates precisely before this time under what conditions the second window scheme is and is not allowed."

Chemicals giant Akzo Nobel launched a 1.6-billion euro buyback programme yesterday. In principle, the tax service sees this as a payment to shareholders because the value of the remaining shares increases as a result. In that case, an exemption has applied for some years.

For companies that do not meet the exemption conditions, great uncertainty has now arisen both on already executed and future buyback programmes, according to the paper.