Tag Archives: SAP.BR

Sapec SA offering attractive tax arbitrage opportunity

Sapec SA is a Belgian holding company that sold their main asset last year, and is going to pay out the majority of the proceeds using a dividend of €150/share. After the dividend is paid some additional cash and some small stakes in various businesses will remain in the holding company with a total book value of €41.6/share. Assuming a 30% holding company discount the stub should be worth roughly €30/share. So if there wouldn’t be dividend taxes you would expect that Sapec would currently be trading at roughly €180/share.

Unfortunately for many investors there are dividend taxes, and in case of Belgium these are a hefty 30 percent. Because of that the stock is trading at just €152.50/share which offers an opportunity for investors who can reclaim some of these taxes and/or use paid dividend taxes as a tax deductible. The author of the “value and opportunity” blog who has been following this situation for some time, discusses here how German investors can get around the tax issue.

Dutch investors have a similar opportunity. There is a double taxation treaty with Belgium that makes it possible to reclaim 15% of the dividend taxes from Belgium (I think most countries have this, but reclaiming the tax might not be equally easy for all countries). From what I have read the procedure isn’t that complicated, although it requires some paperwork and patience. Apparently it can take more than a year before Belgium repays the 15% of the dividend taxes. The other 15% of the dividend taxes can be used as a tax credit against the annual Dutch wealth tax. So you have to be careful not to buy a too big position because then can’t fully deduct it from your Dutch taxes (it’s possible to carry the remaining tax forward to the next year, but this add some complications that makes it not attractive for me). So the trade would look like this:

DateCash flowDescription
5/23/2017-152.50Buy Sapec SA
8/20/2017+105.00Payment dividend (estimated date)
8/20/2017+30.00Sell Sapec SA sub (estimated value, estimated date)
6/30/2018+22.50Use tax credit to offset Dutch wealth tax (estimated date)
12/31/2018+22.50Receive Belgium tax reclaim (estimated date)
 IRR 40.78%

As you can see the internal rate of return of this trade is more than excellent! It’s a bit sad though for Belgium investors. Sapec is a Belgium company, and they are the ones who have no way to avoid paying the tax. The company promised to research options to return capital in a tax efficient manner for small shareholders (the big holders don’t have to pay dividend taxes), but in they end they choice the worst option possible for small holders.


Author is long Sapec SA