September 12, 2013 6:19 pm

Dutch tax avoidance crackdown sparks debate

A Dutch initiative to crack down on tax avoidance by multinational corporations is being fiercely resisted by the business community, with the American Chamber of Commerce in the Netherlands warning it could drive US corporations to move their European headquarters out of the country.

The Netherlands, Ireland and Luxembourg are facing a European Commission inquiry over tax practices that critics say allow multinationals to lower their tax bills by billions of euros. This month the Netherlands responded to rising criticism with a plan to tighten conditions for so-called letterbox companies, shell companies that multinationals establish largely for tax purposes.

The proposal includes an offer to renegotiate Dutch tax treaties with 23 developing countries, which tax justice advocates say lose out on huge amounts of revenue through tax avoidance, to insert anti-fraud provisions.

Critics and defenders of the Netherlands’ corporate-friendly tax rules clashed sharply at a Dutch parliament committee hearing on Thursday.

Wouter Paardekooper, a partner at Baker & McKenzie who heads the tax committee of American group, said the new plan introduces uncertainty that will hurt the Dutch investment climate.

“There are companies with major regional headquarters here with investments in Africa,” Mr Paardekooper said. “[Their] consideration as to whether we should go ahead in the Netherlands, or should make future investments somewhere else, is not well served by this [offer].”

The Dutch government is eager to hold on to the European headquarters of companies such as Starbucks and Ikea, which base themselves in the Netherlands in part due to the fiscal climate.

Politicians and business leaders in Ireland and Luxembourg are also concerned that any unilateral changes to their corporate tax regimes could send foreign investors elsewhere.

On Thursday Dublin played down news of the commission’s probe into its tax arrangements with certain multinational companies, first reported in the Financial Times, describing it as an “information gathering exercise”.

The preliminary inquiry threatens to open a new front in a global clampdown on tax avoidance by enforcing the EU’s state aid rules. The competition commission is scrutinising tax rulings made by each country that give assurances to companies – sometimes in advance of a decision to relocate – over how their tax affairs will be treated.

Speaking at a joint press conference in Dublin with Angel Gurría, secretary-general of the Organisation for Economic Co-operation and Development, Eamon Gilmore, Ireland’s deputy prime minister, said Ireland’s corporate tax regime was statute-based, transparent and effective.

Mr Gurria, who is spearheading international efforts to combat tax avoidance by multinationals, said Ireland was “not a tax haven and had never been a tax haven” under the OECD’s definition.

Mr Gurria said multinational companies could use an army of accountants, fiscal engineers and lawyers and offices around the world to gain tax advantages.

“When we are talking about multinationals we basically have to think about changing the laws because effectively we worked for about 60-70 years to avoid double taxation and we have created double non taxation in many jurisdictions,” Mr Gurria said.

This story has been modified since its original publication to note that Google’s European headquarters are in Ireland

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