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22nd Jan 2021

Dutch tax regime similar to Luxembourg's, auditors find

  • The Netherlands has a tax climate which is 'favourable to multinationals' (Photo: Bamshad Houshyani)

Dividend, interest and royalty payments that companies let pass through the Netherlands to avoid taxation have increased substantially in the past decade, the Netherlands Court of Audit has found.

In a report published on Thursday (6 November), the court writes that tax laws and treaties that originally were meant to avoid that a company has to pay the same tax twice, have led to a tax climate in the Netherlands which is “favourable to multinationals”.

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The tone of the report is mild and the word “tax haven” does not appear in it, but the two left-wing political parties that requested the inquiry say the report shows something needs to be done. They want more transparency on agreements multinationals made with the tax office.

The court writes that the Dutch tax climate for multinationals “does not deviate from other comparable European countries like the United Kingdom, Switzerland and Luxembourg”.

The comparison with Luxembourg is sensitive as the report comes a day after a group of international investigative journalists revealed the scale of tax avoidance schemes in the Grand Duchy.

Companies have avoided paying billions of euros of tax by channelling their profits through schemes approved by the tax office of Luxembourg, the investigation based on leaked documents revealed.

The tax office of the Netherlands, like its counterpart in Luxembourg, offers multinationals the possibility to receive an 'advance tax ruling' or an 'advance pricing agreement', also called comfort letters.

In 2013, the Dutch tax office approved 669 such letters and rejected 25 of them.

The court notes it is difficult to measure the total damage of tax evasion, or tax planning, since every tax scheme is custom-made.

“As there is no fixed pattern we cannot say how prevalent a particular arrangement is”, the court says.

Parliament lacks complete view

It also signals that the Dutch parliament “does not have a complete view” of how the country's tax policies lead to tax avoidance.

In response, deputy finance minister Eric Wiebes, in charge of taxation, wrote that a “reliable quantitative analysis” of these effects is “often not possible” because of the many factors involved.

What the report did reveal is that the sums that pass through so-called special financial institutions in the Netherlands have increased substantially in the past ten years.

These SFIs “transfer dividends, interest and royalties from a company in a foreign country to a company in another foreign country”.

Dividend payments coming into SFIs increased from €13.1 billion in 2004 to €72.7 billion in 2012, outgoing dividend payments from €25.6 billion to €53.7 billion.

Dividend tax in the Netherlands has been lowered to 15 percent in 2007, which is in line with the European trend. In 2013, the Dutch tax office collected €2.2 billion in dividend taxes.

Royalties, which are not charged with tax in the Netherlands, increased as well. Royalties coming into Dutch SFIs grew from €5.4 billion in 2003 to €18.5 billion in 2012, those exiting the Netherlands grew from €4.4 billion to €13.3 billion.

In roughly the same period, interest flows through Netherlands-based SFIs doubled.

The court calls the sums “substantial”, but says it has “no benchmark to draw further conclusions”.

The court notes with worry that “international tax avoidance can undermine the sustainability of public finances and a fair distribution of the tax burden”.

International coordination

However, it notes that the only solution to the unintended effects is international coordination.

“Countries actually compete with each other to offer the most advantageous tax arrangements”, the court writes.

“Dutch measures alone cannot prevent companies following tax routes that lead to the lowest possible tax burden.”

The report describes different tax schemes that exist, but does not name any companies.

In a press release Dutch green MEP Bas Eickhout called on the European Commission to draft legislation that will force multinationals to be transparent about their tax payments. He also called for a European minimum corporate tax "to prevent a race to the bottom".

The European Commission is currently investigating whether tax authorities in the Netherlands have provided state aid to Starbucks. It is executing similar inquiries in Ireland (Apple) and Luxembourg (Fiat and Amazon).

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