Tax Avoidance

Conclusions

Dutch legislation

The tax climate in the Netherlands is favourable to multinational enterprises on account of the rules in place to prevent double taxation. The legislation and rules as such do not depart significantly from those in neighbouring countries.

Dutch policy on tax treaties

The tax treaties the Netherlands concludes are based on principles laid down in the Tax Treaty Policy Memorandum 2011. The Memorandum itself is based on the model convention of the Organisation for Economic Co-operation and Development (OECD). In six recent negotiation dossiers we examined, the State Secretary for Finance had applied the principles laid down in the tax treaty policy during the negotiations.

Tax planning in practice

Tax planning is tailored to meet the wishes of each company. Owing to the lack of a fixed pattern we cannot say how often certain arrangements occur. The attractiveness of setting up a particular arrangement depends on a combination of many factors, such as the corporation tax rate and tax base, withholding tax rates, the ability to set off tax withheld in another country, anti-misuse provisions in national laws or in tax treaties and the presence of an investment protection treaty. The availability of a tax treaty is not a sine qua non to set up a tax-saving international arrangement. In many cases, however, it does offer an additional opportunity to lower the tax burden or provide additional certainty to taxpayers in the country that has the right of taxation.

Provision of information to the House of Representatives

The State Secretary for Finance informs parliament of new developments chiefly when tax treaties are being negotiated and in response to questions in the House of Representatives. The information the State Secretary provides does not differ from that presented in our report. We would note that the State Secretary is bound by law to restrict the information he provides. Information that can be traced back to an individual company may not be made public. We would also note that the House does not have a complete picture of Dutch tax treaty policy in relation to international tax planning. Little unambiguous information is available on the outcomes of the policy or on related payment flows; systematic periodic reports are not published.

Background

Different countries have different tax regimes on account of differences in national legislation and rules and differences in the tax treaties concluded with other countries. Multinational enterprises usually attempt to structure their activities so as to lower their tax burden within the bounds of the law. This is known as tax planning or tax avoidance. Tax avoidance is not illegal but it results in multinationals making an ever smaller contribution to a state’s tax revenues, which must be made up by others if public services are to be maintained at the same level. Multinationals can make use of differences between national corporation tax rates, tax bases and withholding tax rates, whereas companies that operate at national level only cannot.

Recommendations

Tax avoidance is an international phenomenon. Dutch measures alone cannot prevent multinationals using a tax route that minimises their tax burden. Initiatives taken by international organisations to combat arrangements that are set up, against the spirit of the rules, to pay little if any tax therefore deserve the constant and active support of the Netherlands.

We recommend that the responsible ministers and state secretaries:

1. when presenting new and revised treaties, inform parliament what has been done to combat the misuse or unintended use of the treaties; 
2. step up cooperation with treaty partners, paying greater attention during the conclusion and application of tax treaties in order to:
   a. improve the exchange of information;
   b. prevent legal uncertainty for companies wishing to use the treaty (e.g. the application of anti-misuse provisions);
   c. actively assist the Tax and Customs Administration and the tax authority of the treaty partner where necessary;
3. to strengthen the House’s information position, issue a periodic tax monitor on the tax climate and its use, the amount of money at issue, and the impact of measures to combat improper use of tax rules and tax treaties.

Response and afterword

The State Secretary for Finance responded to our audit on 28 October. He was pleased with our conclusion that the Dutch tax climate was attractive to international companies but was not out of step with the tax climate in other European countries. He also agreed with our other conclusions. The State Secretary made several comments on our recommendations to strengthen the information position of the House of Representatives, the publication of a periodic monitor on the tax climate and the use made of it, the amount of money involved and the impact of measures taken to prevent the misuse of tax rules. Regular reports can be published on the tax climate in broad lines but, he thought, the impact of anti-misuse measures would be difficult to determine. He suggested conducting a pilot project over the next five years to improve the provision of information to the House, involving a short annual review of developments in the tax climate.

We recommend that the State Secretary consult the House on how best he can meet its information requirement.