The Netherlands, long considered to be at the heart of a system in which multinational corporations minimise their taxes by shifting profits, has signaled that it’s ready to support a US proposal that ends the practice.
“When the Americans initiate such a proposal and get backing from big countries like Germany and France, it would be surprising if a deal isn’t reached,” Hans Vijlbrief, deputy finance minister in the Dutch caretaker government after last month’s election, said in an interview on Monday. “Tax competition is becoming something of the past.”
While the caretaker government hasn’t taken a formal position yet, Mr Vijlbrief’s remarks show how the momentum for change is building and small countries will struggle to resist. The Netherlands has repeatedly been criticised for a regime that helps international companies reduce their taxes in other jurisdictions.
In one example in 2019, San Francisco-based Uber Technologies responded to a European crackdown on offshore tax havens by creating a $6.1 billion Dutch deduction to help it reduce a chunk of its global bill for years to come.
The Tax Justice Network this year labeled the country the world’s fourth-biggest tax haven after the British Virgin Islands, the Cayman Islands and Bermuda.
US President Joe Biden’s administration has proposed combating such tax-reduction strategies with a global minimum tax rate of 21 per cent, and a system for ensuring that the world’s 100 or so biggest companies pay more in places they actually do business.
Mr Vijlbrief said he expects a deal by July. That’s in line with the aims of the US and the other members of the Organization for Economic Cooperation and Development, which has been trying for years to get its more-than 135 members to agree.
It would also require the assent of other small nations such as Ireland and Luxembourg that have used competitive taxation to attract business.
“We are on the side of countries that want to make this proposal as effective as is possible,” said Mr Vijlbrief, a member of the centrist D66, the second-largest political party.
He added that the Netherlands has been changing its model since Prime Minister Mark Rutte of the People’s Party for Freedom and Democracy formed his third government in 2017. Rutte hopes to build his fourth governing coalition, even as he battles a scandal.
Veto risk
Still, Mr Vijlbrief declined to say if he agrees with the 21 per cent level in the US plan. The Dutch rate is higher than 21 per cent, but the government allows companies to deduct costs including patent rights and interest payments, according to Jan van der Streek, a professor of tax law at Leiden University. Swedish furniture giant Ikea is another firm that has benefited, he said.
“We need to await the precise design of the law but the way it looks now, it will mean the end of tax planning,” Mr Van der Streek said.
Mr Vijlbrief said that while each country effectively holds a veto, they’re unlikely to use it.
“If you ask me, this is not the business climate you want to pursue,” he said. “It damages the tax climate and political morals in a country. If you want people to pay their taxes, big companies must do so too.” – Bloomberg
