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Thursday, 23 February 2012

The Netherlands blames the PIIGS for not being financially sound, but it is on the run with their tax money.

In my SMS from Ernst (25) I wrote about the Portuguese anger towards The Netherlands for being a tax haven.

The large Portuguese supermarket chain Pingo Doce and its holding company Jeronimo Martins have used The Netherlands as the European country of choice to pay their withholding tax and corporate tax. They did so for a very good reason:

The Dutch government concluded bilateral tax treaties with almost all countries in the world. These treaties state among others that when a company pays its corporate and withholding tax in The Netherlands, it doesn’t have to do so in the counterparty country. And The Netherlands with its (extremely) low withholding tax rates and its soft regulation for transfering money to other tax havens is therefore the favorite country for Jeronimo Martins and many other firms. 

In this SMS I wrote:

Although Dos Santos does the right thing from his own point-of-view, I´m strongly against this kind of tax evasion by the extremely wealthy citizens of a country. When the rich citizens don´t pay taxes in their own country, why should the average citizen do so.

This behavior can have a very negative influence on the tax paying morality in a country that is already at the brink of defaulting. And when Portugal defaults, this would have devastating effects on the Euro-zone that is already in a very dire situation.

Of course, my opinion on this usage of The Netherlands as a tax haven was conflicting with the opinion of Finance Minister Jan Kees de Jager and other politicians in The Netherlands, which is summarized:

We are very glad that these large companies and famous artists, like the Rolling Stones and U2, come to our country in order to pay the least corporate and withholding taxes possible.

These activities bring highly-demanding accountancy and legal services jobs, opportunities and a little bit of tax money to The Netherlands. We don’t care that, by doing so, we steal tax money from countries that need it much more than we do. We were smarter than they were and beat them in the process”.

Today it was emphasized once more that not only Portugal suffers from this Dutch policy, but the whole PIIGS-zone (minus Ireland). Het Financieele Dagblad (, the Dutch financial newspaper wrote again a story on this practice of tax evasion via The Netherlands. Here is the largest part of this story:

The Netherlands is increasingly becoming fiscally attractive for companies from South-Europe.

With one or two financial holdings in The Netherlands, it is possible for multinationals to reduce their tax pressure by up to 10%.

Were it only a few companies that used The Netherlands in the nineties, today large multinationals from the PIGS-countries (Portugal, Italy, Greece and Spain) choose massively for a Dutch holding for fiscal reasons.

“Companies from Italy and Spain and to a lesser degree Portugal and Greece have operated much more internationally during the last decades”, is stated by Wiecher Munting, tax advisor from the Rotterdam-based firm OHP. 

“Because of the language and shared history, these operations are often situated in Latin-America and also in Africa. But these companies are also active in Western Europe quite often”, according to Munting who has followed this development closely as a former head of the Tax Rulings department of the Dutch Internal Revenue Service. In order to prevent that the holding’s profits are taxed more than once, these companies try to come to an agreement with the revenue services in the countries where they are active.

At that moment The Netherlands steps in, states Munting: “The Netherlands concluded taxation treaties with almost all countries in the worlds. This makes cash flows to The Netherlands very predictable.” Secondly, the Dutch Internal Revenue Service and tax advisors enjoy ‘a splendid reputation’ internationally, Munting knows. “Advisors can explain what can and cannot be done. Tax inspectors can give security in advance on uncertain international transactions. And predictability is crucial in the international business.” Finally, Munting thinks that the strategic position and good infrastructure make a difference for choosing for The Netherlands.

Fiscally of the utmost importance is that profit of a foreign subsidiary is not taxed again in The Netherlands. “Not all South-European countries allow this exemption from taxes”, according to Munting. “That is why so many international enterprises establish a Dutch (intermediate) holding in which they receive their foreign profits”.

Recently another reason emerged. At the beginning of this year Alexandre Soares dos Santos caused a lot of commotion in Portugal, by openly stating that he moved his 56.1% interest in Jeronimó Martins from Portugal to an Amsterdam-based holding. He stated ‘to fear that Portugal would leave the Euro’. “I have the right to defend my property”, according to Dos Santos.

Portugal counts nine enterprises with revenues above €2 bln, six of those let their cashflows run via The Netherlands. Of the 39 Italian enterprise with revenues above €2 bln, 20 have a holding in The Netherlands. Of the 28 large Spanish enterprises also 20 use The Netherlands.

From this FD article you would get the idea, that the motives of these companies are pure and justified: 
  • companies don’t want to pay taxes twice on the same profit 
  • The Netherlands has the most professional internal revenue service and tax advisors.
  • Companies and people want to protect their money from countries stepping out of the Euro-zone. 

However, that the truth might be somewhat more prozaic and even uglier is disclosed by the following older article (October 14, 2011) from daily newspaper De Volkskrant (

The Netherlands is the second most important tax haven for large enterprises. This comes forward from an investigation into the hundred largest multinationals on the London Stock Exchange.
These companies from all directions have combined 8,492 ventures and joint-ventures in tax havens, of which 1,330 in The Netherlands. Only in the American state Delaware, there are more.

ActionAid, a world wide aid organization states that, next to defraudation of tax, also tax evasion via complicated Special Purpose Vehicles must be battled. Many developing countries lose three times more money through tax evasion than they receive through development projects. ‘Without the tax evasion all millennium goals would be achieved without any problem whatsoever’, is the conclusion of the investigation. The American IRS alone loses $100 bln through tax evasion.

Especially the usage of tax havens by western companies has reached epidemic proportions. ActionAid found out that 98 of 100 FTSE companies have direct or indirect ties with tax havens. Shell and BP alone have more than 100 ventures in the Caribbean, where not a drop of oil is to be found.

Tax havens attract companies in various ways. Jersey, the Cayman Islands, Mauritius, Ireland and Hong Kong ask hardly corporate tax: respectively 0%, 0%, 3%, 12.5% and 16.5%. Switzerland still allows anonymous numbered accounts, while Delaware allows companies to keep their financial statements a secret.

In The Netherlands royalties earned outside the country’s borders are tax-free. The Netherlands is also used as an intermediate station, where companies can transfer large amounts of money to real tax havens with no questions asked. In 2009, Dutch letter-box subsidiaries for foreign enterprises moved €8 trillion per year, about 10% of total world trade.

It this smart business for companies and The Netherlands? Probably, the answer is yes!

But is it morally justified? No way!

Dutch Finance Minister Jan Kees de Jager who is 24/7 ready to blame other countries, like Greece, for the things they do wrong, should end this immoral usage of The Netherlands as a tax haven.

Paying taxes to the countries where you earn most of your money is a moral duty for all companies, including the multinationals. The situation in the PIIGS and in other countries would not be so awkward when multinationals, other companies and wealthy citizens realized that.

I know this is a moralistic view, but almost any ‘race to the bottom’ is an immoral event with dramatic consequences for all parties involved, whether it concerns cheap labor, low production costs or tax evasion.

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