From Starbucks to Google: the position of the Netherlands in the international debate on tax evasion
In the public debate on tax evasion and the role of the Netherlands, the Dutch cabinet now publicly supports multilateral initiatives on tax and development and is considering renegotiating tax treaties with developing countries.
In various newspaper articles and television documentaries around the globe one country was mentioned continuously: The Netherlands. It is a widely known fact that multinationals use the Dutch system for tax planning purposes. And not without good reason; the lack of withholding taxes on royalties and interest and the tax treaty network make the Netherlands an attractive place for headquarter (HQ) services. Furthermore, the existence of a full participation exemption (i.e. profits derived from foreign operational subsidiaries are tax exempt) and the possibility of fiscal unity (i.e. full fiscal consolidation of Dutch tax resident legal entities) in the Dutch corporate income tax Act completes the attractive Dutch HQ climate.
Various members of the Dutch parliament put questions to the State Secretary of Finance in November and December 2012 on the role of the Netherlands in the international tax planning practice of multinational companies. Vording and Vleggeert discussed the Starbucks case and the role of the Dutch tax revenue in their previous blog. In a letter to the Dutch parliament dated 17 January 2013 the Dutch State Secretary of Finance discussed the current status of the international debate on the taxation of multinational companies. More specifically, he described the role of the Netherlands and the Dutch position on how to tackle tax avoidance by and double non-taxation of multinationals. In a debate in the Dutch parliament on 24 January 2013 he defended the Dutch position. He expressed the – already known – standpoint of the Dutch government not to take any action relating to international tax evasion, avoidance or non-taxation unilaterally. Moreover, referring to the criticisms on the necessity of concluding tax treaties with developing countries which the Dutch government receives, the State Secretary replied that the Netherlands actively supports EU and OECD initiatives in this respect. He also pointed out that the Netherlands is co-chair (with South Africa) in the OECD Tax & Development project.
Replying to the critics on whether it is desirable and appropriate to conclude tax treaties with developing countries, the State Secretary actively supports ‘Tax Inspectors Without Borders’, a technical assistance initiative of the OECD Tax & Development project. Most interesting in this respect is that the Dutch cabinet intends to review the outdated tax treaties with developing countries and will consider whether to start renegotiating those treaties.
The public debate on the role of tax treaties in the international fiscal environment appears to be successful. It is my opinion that drafting a framework on the (minimum) conditions that tax treaties with developing countries should contain, could have more weight in a multilateral context than doing the same unilaterally. Therefore, not only the Dutch support to the EU and OECD initiatives is welcome, but support for the initiatives from the United Nations would be even more appreciated. It is the UN that gives the developing countries a platform, since these countries are not and never will be member states of the EU or OECD. Just to avoid being accused of paternalism.