Presentacin Argentina noviembre 2004

1
Tax havens development Case study of the
Netherlands
Francis Weyzig Centre for Research on
Multinational Corporations (SOMO) Tax Learning
Day Dublin, 9 June 2008
2
About SOMO

• What we do Research, capacity building, and
  network coordination
• Areas of work Corporate accountability, trade
  investment
• Research on corporate taxation started in May
  2006
• Tax Justice NL established in May 2007

3
The Netherlands A Tax Haven?
SOMO study, published November 2006 Focus on
Dutch corporate tax system Headline news
4
The Netherlands A Tax Haven?

• The Netherlands is a tax haven
• For multinationals

• For artists

5
The Netherlands A Tax Haven?
The Netherlands is a tax haven

• But not for normal people

• And not for small
• and medium enterprises

6
The Netherlands A Tax Haven?

• Why is the Netherlands a tax haven?
• Harmful tax measures
• ? Income shifting to the Netherlands
• Combination of tax laws and tax treaties
• ? Income shifting through the Netherlands,
• to traditional tax havens

7
The Netherlands A Tax Haven?

• But the Netherlands does not
• Allow bank secrecy
• Refuse to exchange tax information
• Have a low overall corporate tax rate
• Depend on tax haven services for its economy

8
The Netherlands A Tax Haven?

• Consequences
• 20,000 mailbox companies without substance
• Administrated by trust offices

9
The Netherlands A Tax Haven?

• Consequences
• Headquarters located in the Netherlands

10
The Netherlands A Tax Haven?

• Consequences
• Additional tax revenues corporate services
  industry in the Netherlands
• Loss of tax revenues to other countries,
  including developing countries
• (assumption investments not affected)

11
Harmful tax measures More details

• Harmful tax measures identified in 1999
• Various types of tax rulings, allowing transfer
  mis-pricing
• Shipping tax regime
• Taxation of foreign branches
• Group financing activities (GFA) regime

12
Harmful tax measures More details

• Harmful tax measures at present
• Various types of tax rulings, allowing transfer
  mis-pricing
• Shipping tax regime
• Taxation of foreign branches
• Group financing activities (GFA) regime
• But new regime proposed
• ? Income shifting to the Netherlands

13
Technical note Income shifting
Multinational corporation
14
Technical note Income shifting
Parent (UK)
Subsidiary (ZA)
Subsidiary (NL)
Subsidiary (TZ)
Subsidiary (ZA)
Subsidiary (ZM)
15
Income shifting to the Netherlands
Parent (UK)
7 tax
Subsidiary (ZA)
Subsidiary (NL)
Interest
Loan
Subsidiary (TZ)
Subsidiary (ZA)
Subsidiary (ZM)
35 tax
16
Harmful tax measures More details

• Old GFA regime
• Only for multinationals
• Effective tax rate 615 on intra-group royalties
  and interest income
• Very complex legislation
• Approved for less than 100 multinationals
• New GFA regime
• For all companies
• Effective tax rate 5 on intra-group interest
  income
• Relatively simple legislation
• Being reviewed by EC, not in force yet

17
Tax laws and tax treaties More details

• Special features of the Dutch tax system
• Large network of favourable tax treaties,
  reducing withholding tax (WHT) on incoming
  payments
• No WHT on outgoing royalties and interest
• ? Income shifting through the Netherlands
• (conduit constructions)
• Foreign income tax exemption
• Highly developed tax services
• Case law on tax strategies

18
Income shifting through the Netherlands
Example royalty conduit
Parent company (US)
Patent
(Up to 20 tax)
Royalties
15 WHT
Subsidiary (Indonesia)
19
Income shifting through the Netherlands
Example royalty conduit
Parent company (US)
Patent
(Up to 25 tax)
Royalties
10 WHT
Subsidiary (NL)
Subsidiary (Indonesia)
20
Income shifting through the Netherlands
Example royalty conduit
Parent company (US)
Patent
Patent
Royalties
10 WHT
0 WHT
Subsidiary (NL)
Subsidiary (Indonesia)
Subsidiary (Bermuda)
21
Tax Haven and Development Partner
2nd SOMO study, published June 2007 Focus on
effects for developing countries
22
Tax Haven and Development Partner

• In the report
• New data from Dutch Central Bank on conduit
  companies
• Facilitation of aggressive tax avoidance in
  developing countries presented as policy
  coherence issues
• Estimates of tax revenue losses in developing
  countries

23
Tax Haven and Development Partner
Outward FDI stock 2005 (investment abroad)
Investment via conduit companies
?
24
Tax Haven and Development Partner

• Two estimates of tax revenue losses
• 640 million per year
• 100 million per year
• See report for assumptions and calculations
• Other countries facilitate similar aggressive tax
  avoidance constructions

25
Ireland vs. the Netherlands

• Similarities
• Financing (treasury) operations of multinationals
  attracted
• Mailbox companies without substance
• Facilitation of aggressive tax avoidance in other
  countries

26
Ireland vs. the Netherlands

• Differences
• Mainly income shifting through the country
• Most harmful operations mainly financing
• Mainly income shifting to the country
• Most harmful operations
• financing and royalties

27
Ireland vs. the Netherlands

• Campaigning opportunities
• Harmful effects for developing countries ?
  Difficult to prove?
• Mailbox companies, sham constructions ? Other
  issue?
• Unfair competition ?
• The liberal approach?
• Corporate responsibility ? Focus on individual
  companies?