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The Netherlands Will Review Double Tax Treaties With Poor Countries On Fairness

Freemont Group
04 September, 2013

Last week, the government of The Netherlands has approved a proposal that a number of measures will be taken to tackle the status of The Netherlands as tax haven.

They will review a number of existing tax treaties with development countries.

The discussion with regards to the tax treaties totally fits in with the current public outcry for more regulation for internationally structured multinationals. We have some objections.


NGO reports

The latest addition to the arguments against tax planning multinational comes from the side of NGO's like Oxfam Novib, SEO and SOME, who discuss the unfairness of tax evasion and the result it has on development countries.

These reports take the example of investments that are done via The Netherlands, after which the profit is being extracted to an offshore jurisdiction, leaving the local tax authorities empty handed.

What should be done about these developments?

Firstly, lets look at the pretext.

What characterizes the current discussion is the emotion and subjectivity of it. The basis of the Western judicial system is that there are laws and regulations that provides the framework for society. What we now see is that companies experience backlashes while following the law because someone disagrees on emotional arguments. A good example is the case of Starbucks in the UK that we discussed Here.

When reading the NGO's reports (but also articles from the OECD) one notices that a certain pretext is being created. Often, tax avoidance and tax evasion are mentioned in the same sentence. And in such a way that it appears they are part of the same crime: stealing money from the government, or better, the public. Statements are made that while something is legal, it is morally unjust. It is a very slippery slope if this type of rhetoric starts to dictate public policy.

In this case, the eventual policy was based on a research that was performed on behalf of the Dutch Ministry of Foreign Affairs. It nuances the financial estimates of the alleged damage that the NGO's projected, but does follow the pretext. The result is that 23 tax treaties with development countries are going to be reviewed.

What is interesting is that the lack of tax revenue is considered the most important variable. But Western nations don't force development countries to sign tax treaties at gunpoint. Developing countries sign these agreements with the hope it will increase Foreign Direct Investment's (FDIs) that stimulate their economy. The eventual reduced tax benefit is not their concern. Otherwise they probably would not sign it into existence. And eventually opt out of it.


The Unfair Advantage

Another argument that often is being used is that multinationals have an unfair advantage over their local competition. Because their reduced tax burden allows them to offer the same goods at lower prices.

They of course have an advantage, but we would like to also provide two different perspectives. Ikea, Amazon and Starbucks offer their products to a lot of happy consumers. Increasing the tax rates would make us all pay much more for their products.

And why don't we look at the possibility of simply reducing the tax and regulating burden for local companies as a way of making things fairer? These are major hurdles that highly impact startups and the smallest of companies. But this option is completely ignored.


Conclusion

While there is nothing wrong with a public debate on these important issue, we must make sure that policy making does not become a victim of populism. And we must be very careful that our efforts to control and tax everything on the pretext of making things fair not has the negative impacts on the companies (both big and small) and the consumers that actually drive the economy.



Tags: Investment


About the Author


Freemont Group

Freemont Group is a comprehensive provider of fiduciary services, including corporate formation and administration, trust, fund formation, legal-and tax services. Contact: info@freemontgroup.com

 

 

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