Mongolia kills tax treaty with Netherlands. Good.
We've just received an interesting email from colleagues in the Netherlands:
"Mongolia has cancelled its DTA with Netherlands due to treaty shopping and resulting loss of revenue, a new development in the whole tax treaty debate and developing country negotiation strategies. The IMF has played a positive role here, it urged Mongolia to renegotiate or introduce anti-treaty provisions. It did not however advise to cancel the treaty.The original article, in the NRC in Dutch, is here.
This is great timing in the Netherlands, where I assume after BEPS, with more pressure from journalists and NGOs and the EU Action Plan threatening to tackle harmful tax regimes in the EU, we will see our ministry of finance finally having to publicly admit NL is a common tax avoidance route."
This is fascinating, and a welcome development, we think. And an update via Somo, noting that
this is not the only tax DTA Mongolia seems to have cancelled. The Mongolian Parliament also approved the cancellations of tax treaties with Luxembourg, Kuwait and United Arab Emirates in November last year, it seems. See, for instance, this, from PWC, and this, from Deloitte. Argentina did a similar cancellation with Switzerland, and for similar reasons, with analysis here.
A while ago we wrote an article entitled India: don't sign with Liechtenstein which, while the cases and the countries are in each case very different, outlines some of the principles that are at play when you sign a tax treaty (as opposed to merely an information-exchange treaty) with a tax haven such as the Netherlands.
See also Mark Herkenrath's broader analysis of Switzerlands' Double Tax Agreements (DTAs) with developing countries here. A few swallows don't make a summer, but are we seeing the start of something here?
From a web translation of the new NRC article:
Mongolia at the end of last year canceled the tax treaty with the Netherlands because it claims to be the victim of multinationals that the Dutch tax laws used to evade taxes in Mongolia. It is exceptional that a country with a tax unilaterally terminates Netherlands.Other countries, developing and developed, take note of Mongolia: an example that may well be -- though we admittedly aren't familiar with the full details of this case -- worth emulating.
. . .
The Mongolian action comes at a painful time for the Netherlands [TJN: serve those particular Dutch tax abusers right]. International is tax avoidance under the magnifying glass. The G20 (nineteen industrialized countries and the EU) announced recently with measures. Because of the favorable tax legislation for companies to lucrative flows through the Netherlands and thus provide little or no elsewhere to pay taxes.
. . .
According Parliament Speaker Zandaakhuu Enkhbold, the tax treaty that actually intended to avoid double taxation "loses the Mongolian government revenue". "The Netherlands is used as a hub for companies that evade taxes," he said in November.
. . .
In an advisory qualified IMF the tax last year as "problematic" and advised the Mongolian government to take "immediate action."