This, says Prime Minister Rutte, is one of the biggest mistakes of his career: in 2018 he failed to repeal the dividend tax. In his words, Shell and Unilever led the way for two traditionally British-Dutch companies to finally adopt British nationality and move to the United Kingdom.

Rutte made his statement during a parliamentary debate on June 6 and 7 on the outcome of a parliamentary inquiry into gas policy in Groningen. The above paragraph is about admitting mistakes, and the dividend tax should be an example of what the PM can actually do. To the victims in the stands the comparison must have seemed somewhat illusory.

But was that dividend tax really intended? This spring, the Financial Times In 2011, Shell’s board considered leaving the Netherlands (dividend tax 15 percent) not as much for the UK (0 percent), but immediately for the US (30 percent).

What?

Reason: Valuation of equities is structurally higher in the US than in Europe. A U.S. shell with its U.S. headquarters, headquarters, and primary listing in New York would be worth significantly more. Shell later dropped the idea. But it makes you curious. How much additional value could Shell and its investors have achieved?

As is well known, the Shell Board uses the so-called price-to-book value ratio (Price to book value): How much is paid per share relative to the company’s fundamental value? An even better approximation is called Q, which compares how high a company’s market value is to a hypothetical scenario where you could rebuild that company from the ground up. Here are the Qs for Shell, Unilever and their main US competitors. The higher, the better.

No matter what you look at, whether you use price to book, the price-earnings ratio (the ratio between earnings per share and price) or Q itself, Shell and Unilever’s undervaluation relative to their US peers is a reality. Maybe one and a half times as many if they were truly American – or even more.

That US-European ‘rating gap’ (Evaluation interval) applies across the board. Here’s the average price to book for the entire US stock market, compared to the Eurozone and the UK. and the average price-to-earnings ratio. and gross investment gains in U.S. stocks. In all cases, the US stock market rose.

But what is it about? There are many explanations for this. Perhaps American companies have more market dominance than European companies and can charge relatively higher prices for their goods or services.

Reason two: The US capital market is larger and stocks are more tradable than European markets. This attracts more investor money – obviously resulting in structurally higher prices. Or reason three: A small number of very expensive tech giants (like Apple, Facebook, etc.) skew the average stock market valuation upward. Perhaps the greater American emphasis on shareholder value plays a role.

There is something to be said for all the reasons – but there are also objections.

The reality is that US companies have structurally higher earnings per share growth than continental European or UK companies. And this usually results in higher stock market valuations: investors expect higher profits in the future and are already counting on this.

What is also remarkable is that American companies pay very little dividends to shareholders from their profits. There is a clear correlation here with the amount of dividend tax. It averages 30 percent in the US, 20 percent in the Eurozone (15 percent in the Netherlands) and zero in the UK.

The higher the dividend tax, the lower the dividend paid. But that doesn’t mean investors get nothing. Companies buy back their own stock, often tax-free. Earnings per share will automatically increase as there are fewer shares after that – because fewer shares have now been split. Bonus: Buying stock reduces equity – because there are fewer shares. With equal profits, profits now rise as a percentage of the smaller shares. All these are reasons for high stock market valuation. It is also common for companies to buy their own shares with borrowed money Foreign purchase. Remember, this is not a business, it is purely a financial trick.

This trend is huge. Last year, US companies bought back a record $923 billion in their own shares, while they “only” paid out $565 billion in dividends. Champion Apple, which alone has spent about $500 billion on share buybacks over the past decade. Shares outstanding are now just 60 percent of 2013 levels — and Apple’s market capitalization more than sevenfold this week to $2.893 billion — making it the world’s most valuable company.

European capitals, especially London, fear that companies will soon replace Europe with America. what to do? Take the shell. The energy company, which has always depended on dividends, is now ramping up its share buybacks – something other European companies have also started. The team’s big presentation to investors this week took place in New York. If you can’t (yet) go to America, you can (already) be as American as possible.

And the message to Root? At that point, whether or not to abolish the dividend tax is not so important. Shell or Unilever must have had other motives for moving to London anyway. British directors in those erstwhile bi-national companies probably knew all about it.