One Tax Haven Netherlands, many victims
One Tax Haven Netherlands, many victims
The huge interlocking mesh of taxation treaties, by means of which corporations are able to pay little or no tax at source on income streams such as interest payments, royalties and dividends; exemptions, which prevent parent companies established in the Netherlands from having to pay tax on profits earned by subsidiaries in other countries; agreements which can be made in advance with the revenue service which mean that only part of a firm’s profits will be taxed – known as ‘advance tax rulings’- ; and the ease with which ‘empty’ mailbox companies (i.e. those which conduct no real activities of their own) can be set up, and which enable corporations to access Dutch tax advantages; all of these make our country extremely attractive to multinationals looking to avoid taxes by transmitting investments and loans through it, so that every year a cool €4 trillion is transmitted via 12,000 Dutch mailbox companies. Not for nothing does the IMF call the Netherlands a ‘conduit state’.
7% tax on profits
The Netherlands is one of the frontrunners in the international tax race. Of the hundred biggest corporations in the world (measured by turnover) at least eighty have set up a mailbox company in our country. Companies on average pay no more than 7% tax on their profits, amongst the lowest in Europe, though it must be added that a distinction has to be made between small and medium sized enterprises (SMEs) which pay the full whack of 25% company tax and major corporations such as ASML and Shell which practice large scale tax avoidance, by operating for example via Belgium.
The result is that taxes are displaced from capital to labour. Where revenue from tax on profits in 2000 was still good for 18% of our state revenues, by 2013 this had fallen to just 10%. On the other side of this equation, income from taxes on wages and salaries rose from 23% to 34% during the same period. What the multinationals no longer have to pay must be made up by the ordinary worker.
Poor countries the biggest victims
It is often said that the favourable tax climate ensures a lot of foreign investment and brings employment. The actual figures paint a different picture. SOMO’s most optimistic estimate for 2013 indicated a gain of €1.5 billion and 3,500 jobs. Calculating from this €1.5 billion, no more than 0.038% of the €4 trillion which pours into and out of the Netherlands each year reaches the state treasury. Furthermore, some sources assert that the real gain to the nation’s coffers is even lower and that it might be questioned whether the accountants, tax experts, lawyers and consultants who help firms to avoid their taxes are of any real value.
Our favourable company establishment policy is, moreover, damaging to other countries. According to the Dutch NGO Oxfam Novib, developing countries annually lose a total of at least €460 million as a result of tax avoidance in the Netherlands. Globally losses to states total around €5.4 billion. Countries such as Greece and Portugal, which have been hit hard by the debt crisis in Europe, are amongst the victims of tax havens such as our own country. Nineteen of the twenty stock exchange-listed Portuguese companies in 2011 were operating mailbox companies in the Netherlands, their purpose being to reduce the amount paid in Portugal. The result is that people least able to pay bear the greatest burden.
Recent studies by the Foundation for Research into Multinational Enterprises (known by its Dutch acronym, SOMO) have shown that each year millions in Greek tax money is spirited away via the Netherlands’ mailbox companies to tax havens such as Barbados. The EU and the Netherlands are hypocritical about this, forcing Greece on the one hand to make enormous cuts in public spending and in public services and to sell off public property, while on the other hand at the same time actively cooperating in tax avoidance by multinationals, as a result of which the Greek state treasury loses millions.
Our own responsibility
Although the problem of tax evasion and tax avoidance must in the end be tackled on the international level, the Netherlands also carries a real responsibility. Most of the Dutch population agree, with 73% stating that they want an end put to tax dodges which enable multinational corporations (MNCs) to use our country to avoid paying taxes. Lilianne Ploumen, Minister for Foreign Trade and Development Cooperation has, it’s true, added clauses to tax agreements with developing countries and tightened up the location requirements for MNCs to make use of the attractive Dutch fiscal system, but these are as ever nowhere near enough.
That’s why the ‘rulings’ – as the agreements which corporations make with the revenue service are known – must be made public and should only be granted if the company in question has really boosted employment. Moreover, the Netherlands should impose taxation at source on outgoing interest and royalty streams. In addition, the government must actively cooperate in the establishment of a system of public country-by-country reporting, in which MNCs make available a range of financial data including profits, turnover and taxes paid per state, so that everyone can see where the firm is active and what they add to a society, in a public register of the owners of corporations and mailbox companies; as well measures are needed - such as a harmonised European tax constitution - which are capable of countering the race to the bottom over taxation,. If this doesn’t happen, the Netherlands will remain a tax haven in which a small group of extremely rich people grow still richer at the expense of the rest of us.
Tijmen Lucie is a historian and member of SPARK, the SP ‘shadow finance ministry’. This article first appeared, in the original Dutch, on July 30, 2015 on the website Joop.nl