Francis Weyzig

Centre for Research on Multinational Corporations

(SOMO)

Tax Learning Day Dublin, 9 June 2008

 What we do: Research, capacity building,
and network coordination

Areas of work: Corporate

accountability, trade & investment

Research on corporate taxation started in

May 2006

Tax Justice NL established in May 2007

SOMO study,
published
November 2006:

Focus on
Dutch
corporate tax
system

Headline news
The Netherlands is a tax haven

For multinationals

For artists
The Netherlands is a tax haven

But not for normal people

And not for small

and medium enterprises
Why is the Netherlands a tax haven?

1. Harmful tax measures

Income shifting to the Netherlands

2. Combination of tax laws and tax treaties

Income shifting through the Netherlands,
to traditional tax havens
But the Netherlands does not:

Allow bank secrecy

Refuse to exchange tax information
Have a low overall corporate tax rate
Depend on tax haven services for its economy
Consequences

A. 20,000 mailbox companies without substance

Administrated by trust offices
Consequences

B. Headquarters located in the Netherlands

Consequences

C. Additional tax revenues & corporate services

industry in the Netherlands

D. Loss of tax revenues to other countries,

including developing countries
(assumption: investments not affected)
Harmful tax measures identified in 1999

Various types of tax rulings, allowing

transfer mis-pricing

Shipping tax regime

Taxation of foreign branches

Group financing activities (GFA) regime

Harmful tax measures at present

Various types of tax rulings, allowing

transfer mis-pricing

Shipping tax regime

Taxation of foreign branches

Group financing activities (GFA)

regime But new regime proposed
Income shifting to the Netherlands
Multinational
corporation
7% tax

35% tax
Old GFA regime
Only for multinationals
Effective tax rate 615% on intra-group
royalties and interest income
Very complex legislation
Approved for less than 100 multinationals

New GFA regime

For all companies
Effective tax rate 5% on intra-group interest
income
Relatively simple legislation
Being reviewed by EC, not in force yet
Special features of the Dutch tax system

Large network of favourable tax treaties,

reducing withholding tax (WHT) on incoming
payments
No WHT on outgoing royalties and interest
Income shifting through the Netherlands
(conduit constructions)

Foreign income tax exemption

Highly developed tax services
Case law on tax strategies
Example: royalty conduit

(Up to 20% tax)

Royalties

15% WHT
Example: royalty conduit

(Up to 25% tax)

Royalties

10% WHT
Example: royalty conduit

0% Royalties
10% WHT
WHT
2nd SOMO study,
published
June 2007:

Focus on effects
for developing
countries
In the report:

New data from Dutch Central Bank on conduit

companies

Facilitation of aggressive tax avoidance in

developing countries presented as policy
coherence issues

Estimates of tax revenue losses in developing

countries
 O
Billion EURO
ut
w
1, 1, 1, 1, 1,
- 20 40 60 80 00 20 40 60 80
0 0 0 0 0 0 0 0 0
ar
Invest S
F
Io
d
ment
u
w
a
t F
DI
dr

via
F
D
Is
ckt
o
st
condui
oc
t k

2
0
0
5
(i
nv
es
t
m
Two estimates of tax revenue losses:

1. 640 million per year

2. 100 million per year

See report for assumptions and calculations

Other countries facilitate similar aggressive
tax avoidance constructions
Similarities

1. Financing (treasury)
operations of
multinationals attracted

2. Mailbox
companies
without substance

3. Facilitation of aggressive
tax avoidance in other
countries
Differences

1. Mainly income shifting

through the country

2. Most harmful
operations: mainly
financing

1. Mainly income shifting to

the country

2. Most harmful
operations: financing
and royalties
Advocacy opportunities

1. Harmful effects for developing

countries Difficult to
prove?

2. Mailbox companies, sham

constructions Other
issue?

3. Unfair competition
The liberal approach?

3. Corporate responsibility
Focus on individual companies?