The Dutch government has started laying out a plan to combat tax avoidance and dispel the notion that it operates as a tax haven.
Part of the idea behind this push is to become more attractive to firms with a physical presence in the country instead of solely a haven for shell companies.
According to the Financial Times, the Netherlands houses approximately nine thousand “letterbox” companies, some of which have been used by celebrity musicians like the Rolling Stones and U2 to avoid their tax obligations.
During a presentation before parliament last week, the Netherlands’ Secretary of State for Finance, Menno Snel, said he is looking to “overturn the Netherlands’ image as a country that makes it easy for multinationals to avoid taxation.”
“The Netherlands is not a tax haven,” Snel said, adding that the government is “going to make sure that the [business] constructions that were in the news are no longer possible.”
Snell also said that the country is “going to make serious work of tackling letter box firms” and that “only companies which actually bring jobs will be welcomed here with open arms.”
Netherlands Tax Avoidance?
As reported by Mehreen Khan for the Financial Times, one of the main tenets of this tax reform is the establishment of a new royalty tax that will kick in after 2021 and “will be levied on businesses that pay royalties in another country with a lower tax rate or in a jurisdiction that the EU has deemed non-co-operative on tax.”
The Finance Ministry said this royalty tax was designed to “prevent the Netherlands from being used for transfer activities to tax havens” and counter the idea that the Dutch tax system facilitates tax avoidance.
The Ministry also admitted that “the downside of having an international oriented tax system is that it is susceptible to improper use.”
Furthermore, another important part of this reform is to strengthen the country’s Increased Substance Requirements.
As explained by law firm Loyens & Loeff, “The Increased Substance Requirements will include, in addition to the current minimum substance requirements (e.g., at least 50% Dutch resident directors and the bookkeeping being performed in the Netherlands), the requirement that:
the relevant Dutch company incurs annual salary costs of at least € 100,000 in relation to its holding or group financing and licensing functions; and
the relevant Dutch company has (for at least 24 months) office space at its disposal in the Netherlands which is in fact used to carry out its holding, financing or licensing functions.”
Dutch to Correct Advanced Tax Rulings Mistakes.
Dutch financial authorities also discovered this month that close to eighty advanced tax agreements contained mistakes and moved to rectify this issue.
According to Simone Rensch of Public Finance International, “the ministry’s review looked at all deals offered to international companies in the 2012-2016 period and found that in six out of 3,101 cases, the countries specialised team for international tax rulings failed to have two agents sign off on a deal as required.”
Furthermore, writes Rensch, “the review found a total of 78 faulty cases…out of which 72 were made by local inspectors.”
More specifically, as explained by the NL Times, local inspectors involved in 63 of these cases should have passed them on to “a special team established specifically to handle tax rulings with multinationals.”
Snel said that despite the mistakes found following the review, he still believes in the benefits of advance rulings.
“Prior consultation and giving certainty in advance are key elements in the supervision of the tax authorities and are an important pillar of our business climate,” he said.
In any case, Snel will study the advanced rulings procedures with the country’s lower house of parliament to find ways to avoid future mishaps and plans on having the rulings team take care of all deals involving multinational companies.
28. February 2018