Saturday, February 07, 2009

Dutch Foreign Ministry evades tax in poor countries - NRC

A shocking story, once again received with thanks from a Dutch guest blogger.

The Dutch Ministry of Foreign Affairs has made payments to offshore bank accounts to pay for the housing of Dutch diplomats in developing countries. Through these arrangements, the Ministry has illegally evaded host country taxes and foreign exchange regulations. This was revealed today by NRC Handelsblad, a major Dutch newspaper, in a front page article (rough web translation here.)

After last week’s story about Dutch princess Christina managing her wealth via a Guernsey trust and a Guardian investigation showing how the British firm Diageo turned Johnnie Walker into a Dutch brand to avoid taxes, this is yet another blow to the reputation of the Netherlands when it comes to tax matters. While the Ministry of Foreign Affairs promotes good governance abroad, it was knowingly engaged in illegal transactions, tax evasion, and a ‘black money’ system.

In the arrangements, the Ministry paid a part of the housing rent to local bank accounts. However, in addition to that, a larger sum was paid in a foreign currency to offshore accounts in countries like Switzerland, Luxembourg, and Bermuda. The offshore payments to landlords were hidden from the local authorities and sometimes formally agreed in side letters to the rental contracts. Such schemes were used until 2007 in India, Sri Lanka, and Pakistan, and in the past offshore payments were also made for housing in Afghanistan, Iran, Bangladesh, and Nigeria. In “incidental cases”, the practice still continues today.

The comments from Ministry officials are disturbing. A former ambassador explained:

“It was beneficial for both parties to pay abroad. We paid less, the landlord received more. Nobody got worse off, except perhaps the local government (…)”

The highest public official of the Ministry stated:

“We have to observe the rules. I cannot rule out that by doing so we would not get decent houses anymore, but that should be no reason to deviate from the rules.”

In reaction to the newspaper’s findings, some Dutch parliamentarians expressed concerns about a culture of ‘not caring too much about the rules’ in the Foreign Affairs Ministry.


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