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82 • Fifty Shades of Tax Dodging The Netherlands “It is essential for developing countries that businesses pay tax for their services. Ultimately, the business community will also benefit from the extra investment that is funded in this way.” Lilianne Ploumen, Minister for Foreign Trade and Development Cooperation, The Netherlands 868 General overview Tax policies There is no gold to be found in the Netherlands. However, Canadian mining company Eldorado Gold has 12 subsidiaries in Amsterdam all the same. 869 The company has several mines currently operating or in development in Greece. Channelled through the Netherlands, interest income from financing one of these mines ends up in Barbados, where profits are barely taxed. 870 This is just one of the cases of the past year that revealed the ongoing significance of the Netherlands in international tax planning. And it is not just austerity-ridden societies like Greece that are impacted by Dutch tax policies. ActionAid recently reported how Australian mining company Paladin minimised tax payments in Malawi - one of the world’s poorest countries - by using a Dutch letterbox company that reaped the benefits of a tax treaty between Malawi and the Netherlands. 871 (A company spokesperson rejected the report as ‘fundamentally unsound’). 872 LuxLeaks exposed several more cases, 873 and a TV show 874 on the role of the Netherlands in international tax planning spurred Parliamentary questions. 875 Eldorado Gold’s CEO could, with some justification, argue that “Regarding our tax planning and the use of Dutch companies, we do what most corporations do and it’s entirely legal.” 876 In the midst of such developments – and an ongoing investigation into a tax ruling of the Netherlands by the European Commission and its general tax practices by the European Parliament – the Dutch government has shown some welcome signs of embracing minor reform. However, it has not yet shown any intention of fundamentally changing the country’s status as one of Europe’s most important countries for international tax planning. 877 Tax rulings At the Dutch tax authority, companies can request a tax ruling – an Advanced Pricing Agreement (APA) or an Advanced Tax Ruling (ATR)) – which, according to the government, provides companies with “certainty beforehand” on the application of the law on their facts and circumstances in the Netherlands. 878 The number of ATRs and APAs concluded in 2012, 2013 and 2014 are depicted in Table 6. 879 Table 6: Advanced Pricing Agreements (APAs) and Advanced Tax Rulings (ATRs) in the Netherlands 2012 2013 2014 ATR 468 441 429 APA 247 228 203 According to the limited data that is publicly available on APAs, no other EU member state comes close to issuing as many of these agreements as the Netherlands. Luxembourg, which comes in at second, issued 117 APAs in 2013 compared to 228 in the Netherlands. 880 Since 1991 the Netherlands has issued no less than 14,619 rulings. 881 However, information regarding the companies and the content of tax rulings is not published or otherwise publicly shared. 882 After much debate, the Dutch Parliament received details about two individual rulings (Starbucks and KPN), in a technical, closed setting. Ahead of EU agreement on the automatic exchange of tax rulings within the EU, the Netherlands and Germany entered into a bilateral agreement in July 2015 to exchange tax rulings between them. 883 Currently, the European Commission is investigating the ruling (APA) between Starbucks Manufacturing EMEA BV and the Dutch tax authority. Even though the Commission “has doubts about the compatibility of such aid with the internal market”, 884 the Dutch government is confident that the ruling is not a form of illegal state aid. 885
Fifty Shades of Tax Dodging • 83 Special Purpose Entities (SPEs) The beneficial tax policies attract many Special Purpose Entities (SPEs) in the Netherlands, and are part of the reason why there are major inflows and outflows and related stocks of foreign direct investment (FDI) in the Netherlands. Around 80 per cent of the Dutch outward investment position (Dutch FDI stock abroad) is attributable to Dutch SPEs. 886 Largely due to SPEs, the Netherlands is the largest investor worldwide. 887 The routing of investments is especially favourable through the so-called Special Financial Institutions (SFIs). The Dutch Central Bank reports there were approximately 14,400 of these in 2013. The Central Bank estimates that the balance sheets of SPEs, which consist mainly of foreign assets and liabilities, continued to grow to a total of €3,545 billion in 2013. 888 Patent box According to a European Commission report, the Netherlands makes use of tax credits, enhanced allowance and a patent box. 889 The lost tax revenue associated with the patent box – or ‘Innovatiebox’, as it is known in the Netherlands – was approximately €625 million in 2012. 890 The patent box offers a reduced tax rate of 5 per cent, compared to the statutory rate of 20-25 per cent, on profits of which at least 30% has been derived from patents. 891 In early 2015, the Ministry of Finance released figures showing that, in the period 2010-12, the number of patent box users doubled from 910 to 1,841, while the revenue loss associated with the policy grew from approximately €345 million to €852 million. 892 The figures also showed that, while big companies (those with more than 250 employees) only made up 11 per cent of patent box users, they accounted for 60 per cent of the budgetary costs of the incentive. 893 Within the Base Erosion and Profit Shifting (BEPS) process, together with the UK and others, the Netherlands had initially refused to agree to “curbs on patent boxes aimed at stopping ‘harmful’ tax competition that were supported by 40 other countries.” 894 In May 2015, members of the European Parliament’s special committee on tax rulings (TAXE) questioned the Dutch Deputy Minister and other stakeholders on the harmful effects of the innovation box. 895 Questions on abuse of the innovation box were also asked by Dutch politicians. 896 In the European Council, the Dutch government has welcomed efforts to “put a stop on innovation/patent boxes that encourage profit shifting” and “trading of patents only for the purpose to move them to the most favourable tax regime”. However, at the same time they have called for a wider interpretation of which activities qualify for reduced rates offered under patent boxes. 897 The Dutch patent box is currently under review by the government, and an evaluation report is expected at the end of 2015. 898 Tax treaties In a welcome development, the government is approaching 23 developing countries with which the Netherlands already has a tax treaty, or with which negotiations are taking place, with the intention of including an anti-abuse clause in these treaties. 899 A recent report from ActionAid shows, however, that treaties can have a harmful impact in spite of anti-abuse provisions, for example, due to low withholding tax rates. 900 In its response to the questionnaire for this report, the Netherlands states that it is willing to accept higher rates of source state taxation in treaties with developing countries compared to what it would otherwise accept. 901 However, evidence of this intention is limited in existing treaties with developing countries, which on average reduce the withholding tax rates by 3.5 percentage points. 902 In general, the Netherlands adheres to the Organisation for Economic Co-operation and Development (OECD) Model, but the government states that both the OECD and the UN Model are reflected in Dutch tax treaties with developing countries. 903 In 2015, the Netherlands started talks with Senegal, Iraq and Mozambique to negotiate new tax treaties. 904 A renewed treaty with Malawi was recently signed after Malawi cancelled its treaty with the Netherlands in 2013. 905 Financial and corporate transparency Public reporting for multinational corporations Earlier in 2015, the Dutch Parliament adopted a resolution calling for public country by country reporting for all multinational companies. 906 In May 2015, the Dutch government wrote to the European Commission stating that the government “supports the initiatives for public countryby-by reporting” and further encouraged the Commission to “give priority to the impact assessment [announced by the Commission in March 2015] for the expansion of public country-by-country reporting.” 907 The government supports the OECD threshold for country by country reporting, meaning that only companies with annual revenues of more than €750 million would have to report on a country by country basis. In the Netherlands, this means that companies like Shell, Heineken and Unilever would be required to comply, whereas companies like Telegraaf Media Groep 908 (media concern), Van Wijnen 909 (construction company) and Zeeman Groep BV (textile company) 910 would not.
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Contents Glossary 4 Executive summa
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