The Netherlands: tax haven or not?

In the Panama Papers hundreds of Dutch names were found, the Netherlands was a conduit for 23% of corporate investments that ended in a tax haven and the Dutch parliament is suspected of making tax deals with multinationals. Despite this, the Netherlands was not present on a black list of tax havens which was presented by the EU-ministers of Finance this month. Causing displeasure among Paul Tang, member of the European Parliament representing the PvdA. Mister Tang therefore took the initiative to adopt the Netherlands, together with Ireland, Malta and Luxemburg in an explicit package of recommendations to fight tax evasion. However, the proposal to officially label the Netherlands as a tax haven, received both 327 votes in favor and 327 against. What does this mean for the Netherlands? Are we rightly accused of being a tax haven or is Holland just an attractive country of residence?    

The Netherlands has often been accused of being a tax haven for, mostly American, multinational firms. We are a conduit for a large part of corporate investments and multinationals, including Nike, Starbucks and Ikea, have been attracted to the favorable Dutch tax system, leading to a lot of commotion among the press. What are the factors that do make  the Netherlands, without an extreme low tariff of corporate income tax and still with taxes on dividends, so attractive for multinationals?  

First of all, one of the most important aspects of the Dutch corporate income tax system is the participation exemption. This means that foreign subsidiaries can transfer their earnings tax-free to their Dutch parent company, by which multinationals overcome the possibility of double taxation. Moreover, multinationals make use of the, in Dutch, so-called cv/bv-structure. Foreign earned profits are transferred to Holland, and are then, as deductible interest or royalty payments, moved to limited partnerships (cv). The Dutch government does not directly tax these limited partnerships, but levies a tax on the participants behind the partnership. However, not when these participants are settled in a foreign country, then the responsibility lies with this particular country. You probably can already guess: the taxation will never happen. Furthermore, the Netherlands does not levy a tax on interest and royalties paid to foreign citizens and companies and we often see the term ‘rulings’ appearing in the news. Rulings are deals between multinationals and the Dutch tax authorities to lure big international companies to the Netherlands. These rulings have caused both employment opportunities and commotion in the press. Last Monday the press wrote about a likely deal between the Dutch tax authorities and Ikea and some years ago noise arose about the tax evasion by Starbucks.  

However, critics and Dutch economists contradict these accusations and in 2013 the Dutch House of Representatives even captured in a motion that the favorable tax business climate of the Netherlands does not justify the accusation of Holland being a tax haven. According to the criteria set by the OECD the Netherlands does not match a tax haven and satisfies all restrictions for transparency and the exchange of information with other countries. Besides this, the normal tariff of the corporate income tax is a rather high percentage of 25 percent and the Dutch tax construction would fit its small, open economy. The participation exemption would guarantee the competitive position of Dutch multinationals and the attractive bilateral tax agreements contribute to an international orientation of the Dutch business culture.  

Furthermore, the Dutch government sharpened the restrictions towards tax advice and tax constructions and in the future more measures will be taken. The law concerning the participation exemption has been sharpened, interest and royalties that are transferred through the Netherlands will be taxed and the Dutch government assured the House of Representatives last week in a letter that the combat of tax evasion has a high priority. However, with the abolishment of the tax on dividends ahead of us and the accusations of the press concerning a Dutch tax deal with Ikea make this statement sound somewhat unbelievable.