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Thursday, 2 April 2015

“Punishing Greece, while ‘stealing’ its tax euros”. Two reports from the Centre for Research on Multinational Companies (SOMO) shed yet again an unfavourable light on tax haven and letter-box paradise The Netherlands!

The Netherlands has become known as one of the most adamant critics of Greece during the last five years. Dutch politicians from both sides of the political spectrum were always ready to condemn Greece ‘and its irresponsible fiscal behaviour’ during the last fifteen years. 

“The country should have never been allowed into the Euro-zone” is an often heard and seldomly countered opinion, here in the low countries. Only very few Dutch politicians showed some empathy and understanding for the very awkward situation of Greece currently. 

The country has a few massive hurdles to take, before it can be considered as a normal – hence: more Northern European – country with a bright and prosperous future before it. The main problems are:
Greece's total population and birth vs mortality figures
Chart by: Ernst's Economy
Data courtesy of:
Click to enlarge
  • Its excess amounts of civil servants, who owed their job in the past to somebody with influence and ‘friends in high places’;
  • Its widespread corruption and clientelism;
  • Its faltering economy, mainly based upon tourism, agriculture and distribution. 
Summarized: there are factors – like the tax avoidance, the corruption and clientelism, as well as the oversized civil service apparatus – for which the Greek politicians and citizens are both equally responsible. Of course it is not unjustified and unfair, when the Northern European people and countries complain about that.

A harder nut to crack, however, is the unfavourable Greek demographics, in which the aging population and growing number of retired inhabitants is demanding an ever bigger slice of the economic pie, without yielding any of the economic output, which is necessary to pay for this pie. Looking at that, the mass immigration in Greece can almost be considered a blessing in disguise, as it adds some badly needed extra hands to the (future) Greek economy.

Also the lagging Greek industry and services economy are things, for which the Greeks could dearly use “a little help from their friends”, but receive too little of it.  

And one of the main factors in Greece, for which the Dutch can also be considered straight away responsible (i.e. as perpetrators and not just as “innocent” bystanders), is the aforementioned tax avoidance. Although the Dutch government and politicians frantically deny this, the evidence is mounting that The Netherlands is indeed a genuine tax haven and a paradise for letter box firms.

One of the institutions that adds to the stockpile of unfavourable evidence is the Centre for Research on Multinational Companies (SOMO), which published two articles this week, on the Dutch government enabling the tax avoidance (evasion) by Greek companies. Here are the pertinent snippets of these two articles:

A new SOMO report reveals that while Greece endures harsh austerity measures imposed by the European Commission, European Central Bank and IMF and supported by the Netherlands, Greece’s economic recovery is being undermined by large-scale tax avoidance – enabled by the Netherlands.

The report, Fool’s Gold, reveals that tax avoidance by Canadian mining company Eldorado Gold, which uses letter-box companies in the Netherlands, has led to tax losses of at least €1.7 million for Greece in the past two years.

Eldorado Gold uses Dutch letter-box companies to avoid paying taxes while having no material operations in the Netherlands. Fool’s Gold has found that Eldorado Gold has a loan-financing structure that shifts interest payments from Greek subsidiary Hellas Gold SA, via Dutch letter-box companies to a Barbados entity where this income remains untaxed. If this financing structure persists, future profits from the project and related income tax can be expected to be substantially reduced, especially if practised in combination with other tax avoidance techniques widely used by extractive sector firms.

The case of Eldorado Gold is not an isolated one – rather, the Netherlands and Luxembourg are widely used tax conduit countries for foreign companies investing in Greece. The report shows that a staggering 80 per cent of direct investments from the Netherlands to Greece are routed through letter-box companies – an underreported issue in discussions on the causes of Greece’s budget deficit.

SOMO researcher Indra Römgens: “Tax abuse by large corporations operating in Greece and the facilitating role that EU law and Member States’ fiscal regimes play therein should be closely scrutinised by the new European Parliament's special committee on tax rulings.”

It's up to Greece to tackle its own problems with tax avoidance. This is what the Dutch government had to say in its response to the Fool's Gold report which was released on Monday.

The government's reaction leaves no doubt that the Dutch authorities refuse to take responsibility for the pernicious effects of its own tax policies. The country is increasingly isolating itself from the European struggle against tax avoidance.

It was also on Monday that the European Parliament's special committee on tax rulings in the EU first spoke to the European Commission. Pierre Moscovici, the European Commissioner who deals, among other issues, with tax affairs, was grilled by various MEPs. Fabio de Masi, member of the special committee, asked Moscovici whether he knew about the Eldorado research.

Mr. de Masi also stated: “I believe Commissioner Moscovici should address Jeroen Dijsselbloem who is chair of the Eurogroup which keeps imposing austerity measures on Greece. At the same time, Dijsselbloem is also Minister of Finance of the Dutch tax haven through which Greece and many other countries are deprived of rightfully due tax revenues. 

The Netherlands and the EU have a joint responsibility to tackle tax avoidance and have to stop hypocritically prescribing policies leading to economic depression while betraying the principle of sincere cooperation between EU member states.”

Vice-chair Eva Joly of the special committee on tax rulings mentioned above, stressed that same point: "To call this hypocrisy is to put it mildly. It is time that Dutch citizens realise how their governments have, for decades, been defending this kind of robbery at industrial scale”.

The report 'Fool's Gold' proves that Greece's economic recovery is being undermined by tax avoiding practices carried out through letter-box companies in the Netherlands. In 2012-2013, for instance, the Greek government lost € 1,7 million to the Canadian gold mining firm Eldorado Gold. The corporation was using the Netherlands as a conduit to shift its interest income to Barbados, so as to avoid paying taxes. The company has a number of gold mines in Greece which are controversial for damaging the environment and causing human rights abuses.

Structural problem
The problem is indeed structural. Dutch letter-box companies - well-known as instruments for fiscal avoidance – are used by other companies for their investments in Greece: BMW, Coca-Cola, Bosch, Dole and Footlocker, to mention a few.

Of course, one could rightfully state that the €1.7 million in avoided tax from Eldorado Gold is just peanuts, in comparison with the fiscal and economic issues of Greece. However, like the articles both stated, there are many more companies involved in the tax avoidance through The Netherlands. 

This behaviour has a destructive effect on the tax moral of the Greek citizens: “why should we pay our taxes, when these companies and many rich people are not paying theirs”.

The red and bold texts are blatant examples of the Dutch shortsightedness in regards to such tax issues. 

“We use the European tax rules and our tax rulings to our advantage and we don’t give a rat’s behind that this behaviour deprives Greece and other countries from their badly needed tax yields. It is not our problem, so get the funk out of our way”.

The Dutch people, who often have a very negative opinion about Greece, don’t realize sufficiently that this tax avoidance in Greece is enabled by The Netherlands, on their behalf. 

While this development hardly yields extra jobs and prosperity in The Netherlands – the number of jobs in The Netherlands enabled by such tax evasion mounts to not much more than a few hundreds jobs  it is very destructive for other countries. 

Yet, the Dutch government assumes the ostrich position for as long as it lasts.

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