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News & Press: Opinion

Netherlands supports corporate tax planning

03 February 2013   (0 Comments)
Posted by: SAIT Technical
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By Alastair Morphet and Danielle Botha (DLA Cliffe Dekker Hofmeyr Tax Alert)

Executive summary

It was recently reported that the Dutch Finance Minister sent an open letter to the Dutch Parliament, explicitly setting out that the setting up or shifting of real economic activities to lower tax jurisdictions is a legitimate way of reducing taxes. The purpose of the letter was to reassure international investors that the Dutch Government remains welcoming to them and that it would develop its tax policy only by international discussions with bodies such as the OECD and that it would not cave to economic pressure by the EU.

Full article

It was recently reported ('Netherlands backs corporate tax-planning', Society of Trusts and Estate Practitioners Journal (STEP), 24 January 2013, referencing Bloomberg and Ernst and Young) that the Dutch Finance Minister sent an open letter to the Dutch Parliament, explicitly setting out that the setting up or shifting of real economic activities to lower tax jurisdictions is a legitimate way of reducing taxes.

The Minister said that Dutch Tax Laws have sufficient safeguards to protect against profit shifting that has no real economic substance. He also indicated that allocating a group's profits between its operations in different jurisdictions, based on the transfer pricing rules and the arm's length principle, is perfectly legitimate. The Minister indicated that the fact that the rules can produce a range of outcomes was unavoidable.

The purpose of the letter was to reassure international investors that the Dutch Government remains welcoming to them. It further indicated that the Dutch Government would develop its tax policy only by international discussions with bodies such as the OECD, insinuating that it would not cave to economic pressure by the EU.

It is well-known, to the Netherlands government and numerous multinationals, that Dutch holding or intermediate companies may be used to reduce foreign withholding taxes. Companies such as Merck Dell, Yahoo and Google have taken advantage of this fact, channelling an estimated €10.2 trillion through Dutch companies and trust firms, before reaching its final destination in various low-tax jurisdictions.

Predictably, the rest of Europe does not look kindly on the Netherlands' lenient tax policies. Throughout Europe, retirement ages and taxes on the working class are rising and the European Commission, the EU's executive body, has as of January 2013, declared war on tax avoidance and evasion, citing such 'leniency' as costing the EU €1 trillion per year. This week, the United Kingdom Parliament is scheduled to hold its second hearing on the issue of corporate tax avoidance. The initial hearing in November 2012, saw executives from Google and Starbucks Corporation being grilled about their use of Netherlands subsidiaries to cut tax.

However, for those of us involved in tax planning in an increasingly uncertain global economic environment, at least for the time being, this reads like poetry.


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