The Netherlands, a Tax Avoidance Center, Tries to Mend Its Ways

The Netherlands, a Tax Avoidance Center, Tries to Mend Its Ways


THE HAGUE — The Netherlands wants you to know that it is not a tax haven. But Menno Snel, the country’s No. 2 finance official, grudgingly acknowledges that the Dutch have become experts at something else: aggressive tax planning.

That’s backed up by the amount of money pouring across its borders. For tax avoidance purposes, the Netherlands offers the status of a European country, while allowing big multinationals, like Google and Ikea, to move global profits through Dutch subsidiaries, drastically lowering their tax payments.

The atrium of the Dutch Finance Ministry, where Mr. Snel works, is even adorned with full-grown potted palms that give it a whiff of a tropical tax haven. The suggestion of any parallel is probably unintentional.

In any case, the Dutch position as a tax avoidance center could be about to change. In a major reversal, the Finance Ministry this week submitted proposals to Parliament that would shut down the benefits that made the Netherlands a magnet for international corporations — especially American ones, like Netflix, Nike and Uber. Debate on the measures is expected to continue through December.

Under the proposals, the Netherlands plans to impose levies on profits being transferred to tax havens and to block companies from exploiting inconsistent national laws to take the same deduction twice. Whether those proposals will get past the array of accountants, lawyers and consultants who help foreign companies reduce their tax payments, and who have voiced opposition to the changes, is not yet clear.

Mr. Snel, whose formal title is state secretary of finance, said in an interview, “We must be fair in recognizing that some companies are misusing the open tax system that the Netherlands has.”

Amid a preferred backlash towards what many see as multinationals gaming the system, tax change has been a scorching political situation within the Netherlands this yr. As well as, legislators should shut loopholes to keep away from breaching new European Union guidelines that take impact in 2019.

Tax cuts in america additionally have an effect on the enchantment of the Dutch system. On the similar time, new guidelines handed in Washington make it tougher for firms to stash income abroad.

As a comparatively prosperous member of the eurozone, the Netherlands affords a dependable court docket system and lack of official corruption not at all times current in island tax havens. It additionally boasts a complete community of tax treaties with virtually each nation, and little or no tax on cash passing via the nation. It’s straightforward to maneuver cash in, and simple to maneuver it out.

These business-friendly practices assist clarify why the Netherlands, with a inhabitants of 17 million, attracts extra overseas funding than some a lot bigger nations, like France and Germany. In 2017, the Netherlands ranked fourth worldwide within the quantity of overseas direct funding into the nation.

These large inflows “recommend that the nation’s tax guidelines are utilized by firms that have interaction in A.T.P.,” the European Fee stated this yr, referring to aggressive tax planning.

The Netherlands has been particularly in style with American companies. Google and IBM have huge presences within the nation, as do service suppliers such because the legislation agency Baker McKenzie and the accounting firm Deloitte. Fiat Chrysler is technically a Dutch firm. Nike has its European headquarters in Hilversum, simply south of Amsterdam.

Nike has used the Netherlands to considerably scale back the taxes it pays on gross sales exterior america, in response to the Worldwide Consortium of Investigative Journalists. (The New York Instances is a member of the consortium.)

The sports activities attire maker used a standard, authorized methodology of shifting income to a tax haven, in response to the consortium’s analysis. First, it allotted possession of its “swoosh” trademark and different mental property to a subsidiary in Bermuda, which has no company earnings tax. Then, its subsidiary in Hilversum paid royalties for the usage of the emblems to the Bermuda unit. The royalties counted as enterprise bills and in that approach prevented taxation within the Netherlands.

“Nike totally complies with tax laws, and we rigorously guarantee our tax filings are totally aligned with how we run our enterprise,” the corporate stated in an announcement to The Instances.

A minimum of till just lately, the Dutch Finance Ministry was a keen enabler for such preparations. Company accountants and legal professionals may name on the ministry for preapproval of their methods. The Netherlands lengthy justified its legal guidelines by arguing that they inspired multinational firms to ascertain their headquarters within the nation, creating jobs and funding.

Extra just lately, nonetheless, authorized pondering and public opinion have turned.

Officers in Brussels have accused the Netherlands of violating the European Union’s guidelines by serving to Ikea to shear its tax invoice. And polls present that Dutch voters have turn out to be more and more indignant at what they see as particular privileges for rich companies paying little or nothing — middle-class residents of the Netherlands, in contrast, can simply pay greater than half their earnings in taxes.

In nationwide elections final yr, virtually all the most important political events promised change. And the general public anger has offered political impetus for the federal government.

Mr. Snel, a member of the Democrats 66 get together, a socially liberal companion within the governing coalition, is credited by many activists for pursuing the duty with extra zeal than his predecessors.

“Menno Snel is being extra proactive and extra constructive in addressing tax avoidance,” stated Francis Weyzig, a tax coverage professional in The Hague for the charity Oxfam, which argues that island havens steal income from creating nations. “Undoubtedly, there was a change.”

For instance, Mr. Snel has proposed measures to stop firms from exploiting inconsistencies in nationwide guidelines that enable income to fall via the cracks, avoiding taxation.

Different provisions he has proposed oblige legal professionals and accountants to reveal details about questionable preparations. The Netherlands may also restrict the scale of deductions that firms take for curiosity funds, a measure aimed toward one other in style methodology for shifting income to tax havens. In that association, companies take out loans in low-tax nations however allocate the curiosity to the Netherlands, the place it’s deductible as an working expense.

However tax is an enormous enterprise for the Netherlands, leaving open the chance that vigorous objections from multinationals may weaken efforts to retool the system.

Corporations are unlikely to cease on the lookout for methods to attenuate their payments, and for nations to assist them do it. And never everybody believes that the Netherlands is able to forsake a authorized construction that has helped make the nation a hub for worldwide companies. The Netherlands International Funding Company nonetheless advertises on its web site that the nation affords “a supportive company tax construction.”

“The Netherlands is just not critical about ending its tax haven standing,” stated Sven Giegold, a German member of the European Parliament who’s the Inexperienced Get together’s spokesman on tax coverage. He famous that the Netherlands had resisted makes an attempt to stop European nations from competing to have the bottom company price.

Amsterdam, The Hague and different cities within the Netherlands are additionally residence to tens of 1000’s of legal professionals, accountants, notaries and different consultants who specialize within the building of intricate tax avoidance plans with colourful names like “the Dutch sandwich.” That business, together with lobbyists for large companies, has not given up making an attempt to dilute the proposals.

“Corporations that need to come to the Netherlands and arrange a real enterprise — the query is whether or not you’ll scare them off by being too strict,” stated Bartjan Zoetmulder, a tax companion at Loyens & Loeff, an enormous Dutch legislation agency.

Up to now, there are not any indicators of mass unemployment among the many 1000’s of Dutch legal professionals, accountants and notaries who focus on working with overseas companies. Many younger folks nonetheless regard tax advising as a profitable profession with a future, an indication they don’t anticipate the modifications to undercut the enchantment of the Netherlands.

Enrollment in programs for budding tax consultants “has by no means been so excessive,” stated Jan van de Streek, a professor on the College of Amsterdam who teaches tax coverage, with a touch of chagrin.

Critics have dismissed a number of the efforts as feeble. New guidelines would require companies registered within the Netherlands to have actual operations, however firms would qualify if they’ve an workplace and an annual payroll of 100,000 euros, or about $115,000 — a low bar.

And these days there was public outrage over an exemption for shareholder dividends that’s seen as benefiting Shell and Unilever, two of the Netherlands’ largest companies, on the expense of peculiar residents.

Mr. Snel stated that Dutch officers would proceed to seek the advice of with companies, however would apply stricter requirements that have been both in place or would go into pressure in coming years. And the secrecy is over. The Netherlands has already begun sharing info with different nations.

“We don’t need to be seen as tax evaders,” Mr. Snel stated. “We pay our taxes.”

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