The Netherlands as a tax haven - a misunderstanding?
"Nearly one-third of all foreign profits reported by U.S. corporations in 2003 came from just three small, low-tax countries: Bermuda, the Netherlands, and Ireland."
The next day, after strenuous efforts and expressions of displeasure by the Royal Netherlands Embassy in Washington, this sentence was removed from the introduction of the briefing and a Dutch Finance Ministry spokesman explained the original inclusion as a misunderstanding. So, earlier this month, the Tax Justice Netherlands published a comment on the matter, noting that:
"the Dutch system of tax treaties together with other tax regulation is regularly been abused to avoid taxes in other countries. The United States underlined this by pointing at tax avoidance caused by fiscal constructions abroad. Therefore it probably was not just a matter of a misunderstanding."
Our Dutch partners SOMO have now been able to identify the source of the information in the sentence, which was not mentioned in the White House document. The data on foreign profits of US corporations are based on tax returns filed by the corporations themselves, presented in a figure in a 2007 discussion paper by K.A. Clausing and R.S. Avi-Yonah (see figure 2). Although the Netherlands may not qualify as a typical low-tax country (it has low effective tax rates only for specific types of corporate financing activities) the 2003 US tax return data show that foreign profits of US corporations in the Netherlands were almost 13% of the total. This puts the Netherlands in first place for that year, ahead of Ireland and Bermuda. So the figures themselves were not a misunderstanding, and they have been published before – only in a less politically sensitive context.
A last word from Tax Justice Netherlands:
"(The Dutch Finance Minister) underlines the active role of the Netherlands to promote transparency and information exchange, but does not seem to be willing to critically review the possibilities to abuse the Dutch set of tax treaties at the expense of other countries.
But how desirable is the current situation? What are the social consequences of the praised Dutch tax treaties? Today the Americans complain, but what other countries face tax evasion as a result of the Dutch treaties? How much do developing countries miss out on tax income as a result of smart fiscal constructions that the system does not prevent?
Tax Justice Netherlands underlines that it is good for the Netherlands to have a sound set of tax treaties, but also reiterates that the possibilities of abuse of the tax regulation needs to be point of discussion. Government, politics and not in the least multinationals need to take position and consider their social responsibility. Calling this issue a misunderstanding means avoiding the underlying problems and ignoring social responsibility."
Quite so. For more information, see SOMO's report Netherlands - A Tax haven? and follow-ups to it here.
PS - for the record - we agree with Richard Murphy who says the Netherlands is a tax haven. As he puts it:
"The Netherlands is a tax haven. . . . It is brazenly seeking to artificially reallocate profits to its domain. In the process it is seeking to subvert tax compliance."