On 3 April 2017, the Ministry of Economic Affairs published documents that illustrate how the Dutch tax system is used to convince foreign businesses to invest in the Netherlands. The documents were released following a request by a Dutch newspaper, NRC Handelsblad (in Dutch), under the Freedom of Information Act. )). The documents mainly consist of 2500 pages of emails sent and received by the Netherlands Foreign Investment Agency (NFIA). The NFIA, an operational unit of the Ministry of Economic Affairs, supports companies who wish to establish their businesses in the Netherlands: “Whether you’re considering locating in the Netherlands or have existing operations here, the Netherlands Foreign Investment Agency (NFIA) is prepared to assist your company at every stage of establishing or expanding operations here.” The services of the NFIA include providing personalised guidance and counsel on tax.

The documents illustrate how the NFIA assisted ICL, a global manufacturer of agricultural products that is based in Israel. In 2013, the NFIA discovered that ICL was planning to set up a shared service centre that would handle ICL’s global procurement. The setup of the service centre was expected to involve 290 jobs and an investment of approximately € 3.2 million. As ICL already had two production sites in the Netherlands, Amsterdam was one of the locations they were considering for the procurement function. Initially, the Netherlands was in competition with multiple countries in Europe but in February 2014 the competition narrowed down to Switzerland. On 3 March 2014, ICL explained in an email to the NFIA that they were analysing the pros and cons of an investment in the Netherlands or Switzerland. ICL further indicated that the effective tax rate would be the decisive factor. The company stressed that it would be crucial that the Netherlands matched the Swiss effective tax rate of approximately 10%.

The NFIA was confident that discussions with the Dutch tax authorities would show that the Netherlands is an advantageous location for ICL’s shared service centre. They explained that ICL could negotiate an informal capital ruling with the Dutch tax authorities: “the addition of activities/workforce usually also involves an increase in value in the Dutch company. Under certain circumstances, it would be possible to, through and to the extent of this increase in value, recognize an informal capital contribution by the Dutch company’s foreign direct or indirect shareholder into the Dutch company. This contribution could under certain circumstances be depreciated over a number of years, usually between 10 and 15 years. The depreciation would obviously result in a reduction of the taxable basis of the company, which is normally aimed at leading to an effective tax rate of around 5% to 12.5% (statutory rate max 25%).” (See website Rijksoverheid.nl Annex 4, p. 4/336)

The NFIA further advised ICL that discussions with the Dutch tax authorities should be based on a thorough tax study. The NFIA was prepared to offer a financial contribution of €25,000 to an ICL tax study provided that the study was carried out by a Dutch tax consultant.

On 20 March 2014, ICL and ICL’s tax advisor KPMG had a meeting with the tax authorities. After the meeting KPMG noted in a mail to ICL: “The presentation of this morning has raised a good impression with the Dutch tax authorities. Their initial feedback was positive, and the announcement of Mr [JV: name deleted for privacy reasons] that he will come back with a solution that is good for ICL sounds promising. Of course we have to await their final position.” It took the tax authorities only a few weeks to determine their position. On 8 April 2014, the NFIA noted: “Following the pre-ruling meeting d.d. 20.03.2014 with the tax authorities during which ICL presented its renewed business model to support its growth plans in worldwide, ICL received a first indication from the Tax Authorities on the tax rate. This tax rate complies with ICL’s expectations and would allow for the first phase of the project to be implemented.” (See website Rijksoverheid.nl Annex 2, p. 205/415). In July 2014, the tax ruling was finalized.

Lastly, please note that all of this may have major repercussions in the field of EU State aid. After Apple, Starbucks and various other multinationals, these deals may well give rise to more investigations by the European Commission.