Netherlands admits shame in being tax haven, pledges limited reforms


Cross-posted with the Tax Justice Blog:

We have long criticised the Netherlands for being a particularly important European tax haven helping multinational companies escape taxation. As, increasingly, have many others in Europe, the United States, and elsewhere. We recently noted, too, how some developing countries have been kicking back at some of the abuses that have been perpetrated upon them with the help of the Netherlands and other tax havens.

We are now delighted to see a Financial Times interview Netherlands’ deputy finance minister, Frans Weekers, making an admission that his government is uncomfortable with, and perhaps even ashamed of, the Netherlands’ role in this pernicious trade. The Financial Times reports:

“A proposal by the Netherlands to renegotiate its tax treaties with 23 least-developed countries marks a turning point for a country that has until now deflected accusations that it is a key player in tax avoidance by multinational corporations.

The initiative, which comes as the G20 meeting in St. Petersburg is putting tax harmonisation issues high on the agenda, is the most concrete move yet by the Netherlands to address the criticisms. Tax justice advocates say the country’s network of treaties with over 90 countries makes it a nexus for tax avoidance, allowing multinationals to reroute their profits through Dutch “letterbox companies” that do no real business in the Netherlands and exist largely for tax purposes.”

This comes in the context and the spirit of today’s G20 leaders’ declaration, which includes a statement that:

“We call on member countries to examine how our own domestic laws contribute to BEPS [TJN: Base Erosion and Profit Shifting, OECD-speak for corporate tax dodging] and to ensure that international and our own tax rules do not allow or encourage multinational enterprises to reduce overall taxes paid by artificially shifting profits to low-tax jurisdictions.”

There are big lacunae to be addressed in the Dutch plans, however. The FT article describes an official Dutch report presented last week, which seeks to insert new anti-fraud provisions in their tax treaties with the 23 countries; will pass on information to tax authorities in developing countries; and will ‘crack down’ on letterbox companies. In a brief email to TJN, Lee Sheppard of Tax Analysts spoke of the Dutch

“promises to put more ‘substance’ in shell companies MNCs [Multinational Corporations] use. Turns out the “substance” ain’t gonna be much.”

Despite the disappointments in the detail (as is so often the case with shiny-looking tax justice-styled reforms, or world leaders’ statements on these kinds of issues) the broad new public statement by the Dutch authorities is greatly welcome. The headline announcement is of great political significance, and an official admission that the tax justice movement, in the Netherlands and elsewhere, has had a point all along.

Today’s blogger remembers a tax justice meeting in Amsterdam a few years ago when a top Dutch tax official gave a horribly patronising presentation, seeking to pooh-pooh a seminal report by our excellent Dutch NGO colleagues at SOMO. Times, they are a-changin’.

“Over the past 10 years the trend has been for the number of letterbox companies in the Netherlands to keep growing. I want to turn that trend around,” Mr Weekers said. “I see the Netherlands being portrayed in a bad light. I don’t want to be portrayed in a bad light.

The Dutch move stems from a government-commissioned report over the summer which, for the first time, agreed with tax-justice groups that developing countries miss out on substantial tax revenues because of their treaties with the Netherlands.”

Here is a clear and public admission by the Netherlands government that this tax haven activity is causing great harm around the world. Or, to put it more succinctly, Tax Havens Cause Poverty.

Which, of course, immediately raises the next question: why stop at 23 countries? And why stop at these limited measures?

The logic points inexorably in one direction: the Netherlands should work towards rolling up this whole sordid industry and starting to compete on the basis of genuine business activity.

We urge other nations engaged in this shameful trade – such as Ireland, Luxembourg, Switzerland, Belgium, the United Kingdom and others – to take note. We applaud the Netherlands for making what must have been -at least as far as it goes – a politically difficult move.

For those with a Financial Times subscription, there is a whole lot more in the FT story.