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Friday, 25 January 2013

State Secretary Frans Weekers for Tax Affairs: “The Netherlands a tax-haven? I’m not going to do much about it!”

I have a riddle for you. Which country doesn’t belong among the following countries?
  • The Cayman Islands;
  • Bermuda;
  • Mauritius;
  • The Netherlands; 
The answer is… none. This is a list of (in)famous tax havens and The Netherlands is a very much appreciated member of this list.

The Netherlands is famous as a tax-haven among high-profile companies and people. The following entities have reputedly been using The Netherlands as a tax haven:
  • international companies like Google, Amazon and Starbucks;
  • famous pop-groups like The Rolling Stones and U2;
  • captains of industry, like CEO/Owner Alexandre Soares dos Santos of the Portuguese investment company Jeronimo Martins, which owns the Pingo Doce supermarkets chain in Portugal;
  • VIP’s like Mitt Romney, the former candidate for the US presidency;
These rich and influential companies and people appreciate The Netherlands for the close-to-zero rates that have to be paid for taxes like:
  • Corporate taxes on the revenues of foreign subsidiaries;
  • Capital growth taxes;
  • Withholding taxes on foreign dividends and royalty earnings;
Those companies and people all make usage of Dutch letterbox-companies to collect foreign sales yields and income, dividends and royalties.

By letting these kinds of foreign revenues/income flow through such a Dutch letterbox firm, these entities may use a special loophole in the Dutch tax-laws. This so-called participation dispensation allows companies to pay only a token percentage of (maximum) 5% taxes on their foreign earnings, while the foreign subsidiaries don't have to pay corporate taxes in their host country.

For pop groups, like U2 and The Rolling Stones, the tax rate is even lower. According to an article in the Dutch newspaper Trouw, these groups earned combinedly €331 million in 2005, over which they paid a staggering 1.6% in taxes.

By the way, The Rolling Stones frantically denied using The Netherlands for tax avoidance purposes and even threatened the KRO (, a Dutch TV-station, with a subpoena for slander on this subject.

Nevertheless, The Netherlands is a tax-haven that is used by many VIP’s and many companies in the Fortune 500 for legal tax-avoidance. Please read my earlier articles for more details on this subject, through the aforementioned links. You can also use my search engine in the top of my blog.

Today, January 24, the Dutch Second Chamber of parliament debated over “The Netherlands as a tax-haven” with the State Secretary for Tax Affairs Frans Weekers.

Summarized, the opinion of the state secretary and a majority in Dutch parliament was: “The Netherlands being a tax-haven is not our problem. It supplies us with decent money and lots of highly-qualified legal jobs. Ergo, we go through the motions, but we are not going to do much about it…”

Here are the pertinent snips from today’s article in Het Financieele Dagblad:

State Secretary Frans Weekers for Tax Affairs is willing to apply more stringent audits on private limiteds that make usage of Dutch tax-treaties.

Before acting, however, Weekers first awaits the results of an investigation by the Holland Financial Centre (HFC) into the interests of the about 23,500 special financial institutions (bfi’s), that Dutch and foreign companies use to transfer money flows through The Netherlands.

Weekers made this commitment yesterday in a debate with the Second Chamber over tax-treaties and the possibilities that the earlier mentioned bfi’s offer to legally avoid taxes via The Netherlands. He expects that the HFC’s report offers him better judgment in instructing the Dutch internal revenue service, about the kind of bfi’s that especially enable tax avoidance.

Weekers emphasized that he didn’t want to deteriorate the Dutch fiscal climate, by carrying through stricter demands, concerning the added value of these ‘letterbox firms’. ’This would endanger current and future investments and employment’, according to the VVD-official.

The Dutch network of tax-treaties enables it to forward money flows against a (near-) zero tax rate to countries that hardly charge corporate taxes. Especially developing countries have been financially harmed through this policy.

Weekers defends the Dutch fiscal policy with the argument that international companies profit from differences in national tax-laws between different countries. As long as a means of financing is considered an equity in one country and a liability in another country, companies could use this lacuna.

And boy, do foreign companies use this lacuna. Last Wednesday, the FD printed an article on French firms that use The Netherlands as a tax-haven.

Many French companies – also companies in which the French state owns a large stake – are establishing financial holding companies in The Netherlands for fiscal reasons. The usage of Dutch holdings by French companies is increasing, according to an investigation by the FD.

Recently, the energy companies EDF and GDF Suez, defense giant Thales and water-supply company Veolia established financial holdings in The Netherlands. The French state owns a considerable stake in all four companies. In case of EDF, this stake is even 84%.

The tax-avoidance by French state-companies is peculiar: recently, movie-star Gérard Depardieu and famous entrepreneur Bernard Arnault caused a scandal by planning to leave France in favor of a foreign country with a more favorable tax-rate. PM Jean-Marc Ayrault and other ministers were furiously criticizing these ‘traitors’.

However, now it becomes clear that the French State itself profits from fiscally favorable arrangements abroad. ‘We are totally hypocrite’, according to French senator Eric Boquet (Partie Communiste) in a reaction to the FD investigation. Boquet led an investigation by the French senate into fiscal optimization and tax-havens.

Twenty large French companies (sales revenues north of €2 bln) have established one or more financial holdings in The Netherlands [data from the FD investigation – EL]. Among these twenty companies, there are former state-companies, but also companies in which the state took a strategic interest.

It is not clear how large the tax-benefit in The Netherlands is for the French companies. The consolidated annual account of these companies does not disclose how much profits are transfered via The Netherlands. Dividends coming from Polish subsidiaries, for instance, have a tax exemption of 100% in The Netherlands, while France charges 5% in taxes.

Also the Dutch newspaper De Volkskrant ( carried out an investigation into the subject of The Netherlands as a tax-haven. Here are the pertinent snips of this investigation:

Since 2005, the largest multinationals in the world established litterally hundreds of new fiscal constructs in The Netherlands. This was disclosed by an investigation of De Volkskrant into the annual reports of the hundred largest, worldwide-operating companies and their Dutch subsidiaries.

In 2011, these multinationals transfered at least €57 bln into and out of The Netherlands, without paying much taxes. Google, IBM and ENI transfered the most amounts through The Netherlands. The investigation disclosed that the Dutch tax-pressure on these letterbox-firms is very opaque, but very low anyway. These companies have made confidential agreements with the Dutch internal revenue service – the so-called tax rulings – and paid between 0 and 5% of taxes over the money they transfered into and out of The Netherlands.

For these transactions the companies used about thousand letterbox firms, recently established in The Netherlands. On top of that, the companies like Google, Microsoft, Gazprom and Wal-mart used a wide array of Dutch fiscal constructs to reduce their tax-pressure.

The yields for The Netherlands are relatively low, when compared to the money flows themselves. An estimated thousand people work in and around the fiscal industry and the estimated yields for our country amount to €1 bln.

It seems to me that with thousand persons, the Volkskrant’s estimate of the number of workers in the fiscal industry is quite low, although I can’t challenge the number. Still, even if the number would be 300% higher, this industry would not be a very large driver for jobs. Nevertheless, The Netherlands thinks this is a lucrative source of income and employment.

I have a different description for it: receiving of ‘stolen’ goods. Most of these fiscal constructs are legal tax-avoidance and only some could perhaps be considered as illegal tax evasion.

So, from a fiscal / legal point-of-view everything is hunky dory. However, from a MORAL point of view, this is legal robbery.

Many countries – and not only the developing countries – need their tax-income to pay for:

  • Central and local governments;
  • Keeping the economy and employment in good shape;
  • Development of business, housing and recreational areas and  environmental protection;
  • Development of transport, ict and energy infrastructures;
  • A national health (insurance) infrastructure;
  • Unemployment benefit and welfare for people that are not so lucky;
Through the Dutch tax-arrangements, these countries are now deprived of this very necessary tax income and earn much less income than they should earn from a moral point-of-view. The VIP's and companies involved in these tax-schemes profit from the infrastructure and utilities of their host-countries, but refuse to pay their fair share of taxes to these countries.

And then there is one more thing: Joe-the-Plummer, Jan Modaal or Otto Normalverbraucher (i.e. the average middle-class person in a country) sees/hears that large and powerful companies and VIP’s avoid / evade taxes through tax-havens, like The Netherlands.

Then he thinks: “when I forget to pay my income taxes and social security, I am hunted down like a wild animal. But look at them! Why should I pay my taxes anyway?! It’s not fair!” I won’t argue with Joe the Plummer in this situation.

When the Dutch government would make a gargantuous profit on these tax-deals, I would think: “at least somebody profits from it”. However, the Dutch state earns a token income of €1 bln for their strains (compared to the hundreds of billions of Euro’s and Dollars in transfered money) and the tax-industry offers only work to one thousand fiscalists and legal attorneys.

That is nothing compared to the amount of jobs that Small and Medium Enterprise companies supply. Companies that pay much more taxes. 

In the process, the Dutch could be seen by other countries as swindlers and brokers that deprive them of their fair income. That is not illegal, but it is wrong! 

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