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Sunday, 31 May 2015

TAXE, the fiscal committee of the European Parliament visited The Netherlands last Friday: is the net finally closing around the empty Dutch letter-box firms?!

If one thing became clear during the last few years, it is the fact that the status of The Netherlands as tax haven is finally getting in the crosshairs of the United States and European institutions, like the European Commission and Parliament.

The Dutch government, as well as politicians in the Dutch Second Chamber of Parliament, almost frantically deny that The Netherlands IS a tax haven: the Dutch parliament even accepted a ridiculous motion, in which The Netherlands officially denies to be one. Nevertheless, the writings are on the wall.

Numerous foreign companies and private millionairs from all over the globe knew where to go to, when they wanted to forward their money at a bargain price to tax-friendly savings’ banks and other financial hotspots in the Carribbean area or elsewhere. And it weren’t the Ghostbusters...

Money, that these people and companies earned with foreign-based dividends, or with royalties, patents and other earnings, coming from foreign subsidiaries, made a U-turn through The Netherlands, only to end at a beautiful, palmtree-laden island somewhere on the globe, with more banks and companies than inhabitants… on paper. But it seems that something is finally changing in Europe…

Not that this change is grasped by The Hague yet; the Dutch politicians still assume the ostrich position (“Please move on, nothing to see here”) when it comes to the Dutch role in the ubiquitous tax avoidance (our should we call it evasion?) by large corporations, as well as rich businessmen and famous artists like U2 and the Rolling Stones.

Nevertheless, it seems that the ‘Big Four’ accountancy firms (KPMG, PWC, EY and Deloitte) finally understand that a different wind is blowing in Europe, after they have all been invited to plea for the TAXE committee on taxes of the European Parliament.

Their pleas were meant to discover/discuss the best arrangements to make the tax collection by individual countries – within the European Union and outside of it – as fair as possible, for both the corporations in question, as for the countries where the underlying yields are earnt.

The ultimate goals are: no double taxing for corporations in countries at both the emitter and the receiver side of money transfers, but also no zero taxing by both parties. And an end to the artificial, fiscal constructs that large corporations use to scoop out their taxable profits and income.

Is it a coincidence that recently a movement has started in The Netherlands, which seemingly wants to make an end to the numerous, so-called letterbox-companies in this country? Letterbox companies, which seemed only created for exactly that purpose of scooping out money from corporate profits and income? Let’s see what happens along the way.

Prisco Battes, journalist at Het Financieele Dagblad (FD) wrote an article about this new phenomenon. Here are the pertinent snips of it:

Fiscal counsels increasingly question letterbox companies, which are established in The Netherlands for the single purpose of transferring corporate income from interest and royalties to tax havens.

Partners of large tax consultancy bureaus tell the FD, that they are informed by foreign customers with subsidiaries in The Netherlands, that they should be so wise to abolish these letterbox firms.

According to leaving chairman Marnix van Rij of the Dutch Order of Fiscal Counsels, The Netherlands has to guard its favorable fiscal climate for the establishment of companies and ‘it should look after not being punished for a side product of this favourable fiscal climate’.

My comment: In plain English, this opaque remarks means that ‘everybody and their sister should leave the sinking ship of the empty letterbox firms’.

The discussion about the letterbox companies is very topical, now that there is an international movement working towards the establishment of measures, which should prevent against scooping out the basis of tax assessement and avoidance of revenue taxes by international companies.

“As a guild, we went through a certain process regarding empty letterbox companies”, according to Van Rij in an interview with the FD. “We don’t close our eyes for reality and we are not in the defensive in order to keep everything as-is. Empty companies, which don’t have another purpose than transferring money flows through The Netherlands against the absolute minimum amount in taxes, are bad for the Dutch image. By maintaining this tactics, The Netherlands could be punished by both the OECD and the EU for what is mainly a fiscal side product.

Until recently, employment and tax yields were arguments to keep the ‘empty’ letterbox companies. Now, fiscal counsels of large tax consultancy firms state that these constructs are not viable anymore.

Companies must have a certain ‘substance’ in The Netherlands. Customers belonging to such companies with substance, warn The Netherlands that it puts its favourable fiscal climate under jeopardy, when it maintains its policy with respect to letterbox companies.

When even the large accountancy firms, as well as the chairman of the Dutch Order of Fiscal Counsels, think that change is necessary in The Netherlands with respect to some fiscal arrangements, you can bet that change IS indeed necessary.

And last Friday, the special TAXE committee of the European Parliament visited Dutch State Secretary Eric Wiebes of Financial (i.e. Fiscal) Affairs to ask him about the Dutch situation with respect to fiscal constructs and special tax rulings for large corporations.

Wiebes bravely stood his ground and maintained his denial of The Netherlands being a tax haven, according to De Financiële Telegraaf, while reluctantly giving a little bit more openness about the favourable fiscal rulings for large corporations in our country.

The national revenue services of The Netherlands and Germany will soon automatically exchange data, regarding tax deals with large corporations: the so-called tax rulings. Within two weeks both countries will sign a treaty to that respect, according to State Secretary Eric Wiebes of Financial Affairs.

He stated that, after being visited by a delegation of the European Parliament, which is investigating the infamous tax-rulings in a number of countries, with multinationals, like Starbucks.

Wiebes stated that The Netherlands wants to be a front-runner in Europe in the battle against tax evasion. Yet there is nothing wrong with the Dutch tax-rulings, which are according to Wiebes ‘flawless and professional’. Wiebes also wants to make an end to the existence of empty letterbox companies, which are established solely to evade taxes and don’t bring any employment in the country of their establishment.

Earlier that Friday, Wiebes stated that the tax rulings are meant to offer certainty in advance about the height of their tax assessment, but did not “hand out presents to large companies”. “The Netherlands is not a tax-haven”, according to the liberal-conservative State Secretary (VVD).

The last remark is where The Netherlands, represented by this State Secretary  differs in opinion with many, many other countries, people and institutions, who consider that The Netherlands is exactly that: a tax haven!

One thing is certain: in spite of all the bold words of Eric Wiebes and in spite of the fact that chairman Marnix van Rij of the Order of Fiscal Counsels does not want to slaughter the goose with the golden eggs, by totally abandoning the (empty) letterbox firms, it seems that these fiscal constructs have a bright future behind them.

And when the Dutch government does not voluntary abandon the most blatant fiscal presents to the likes of Starbucks, the European Parliament probably will. That is news that will undoubtedly lead to broad disappointment among the financial industry and government of Ireland, The United Kingdom, Luxemburg and The Netherlands. Nevertheless, it will also lead to sheer happiness among numerous countries all over the globe, who see their natural resources being emptied by large, multinational companies, who hardly pay one penny in taxes in exchange.

It is good news when this practice will end soon. 

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