Dutch Developing Corporate Rate Cut to Stay Attractive

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By Linda A Thompson

June 15 — State Secretary of Finance Eric Wiebes is preparing a proposal to reduce the Netherlands corporate income tax rate so as to safeguard the country's ability to attract multinational companies.

Speaking at the annual conference of the Dutch Association of Tax Advisers in Amsterdam June 14, Wiebes said international efforts to combat tax avoidance by multinationals are already having an impact on the country's appeal as an investment destination.

Both the Netherlands Foreign Investment Agency and the tax authority unit that concludes advance pricing agreements and advance tax rulings have reported growing insecurity among taxpayers and potential investors concerning the country's investment climate, Wiebes said.

“The future is already here,” he concluded, urging an offensive approach.

He admitted that the Netherlands, as an open trading economy, had become “maybe not a tax paradise, but a transition country” for taxpayers looking to exploit loopholes between countries' tax systems for aggressive tax planning. These multinationals typically rerouted their profits and operations through the Netherlands by opening a post office box there.

“We could, of course, always kneel down, grieving at the languishing empty letter boxes, but that won't necessarily help us,” he said.

‘Post-BEPS World.'

The Netherlands instead has chosen to be a “loyal, proactive participant” in the OECD's effort to combat tax base erosion and profit shifting. Such a stance will allow the country to weigh the outcome of the BEPS action plan, Wiebes said, and simultaneously guarantee the appeal of the Netherlands' investment climate in “the post-BEPS world.”

The Organization for Economic Cooperation and Development issued most of the final recommendations under its sweeping, 15-item action plan to rewrite the global tax rules in October 2015. Among the recommendations were changes to the OECD transfer pricing guidelines that would ensure companies report profits where activities take place (197 ITM, 10/6/15).

Wiebes said a number of initiatives under the BEPS plan were non-negotiable, such as the principle of taxing profits where they are realized, some aspects of the changes to tax treaties and the Dutch participation exemption.

“We need to keep our hands off those, but, beyond that, let’s fight” to have a voice in the debate and be able to shape the Netherlands' appeal as a location for multinationals in the future, Wiebes said.

Not Another Ireland

Multinational companies today account for 40 percent of the jobs in the Netherlands, Wiebes noted. As an open economy, the country competes with Ireland, the U.K. and other locations to attract multinationals and the jobs they bring. At 12.5 percent, Ireland's corporate tax rate is the lowest in Europe, while the U.K. plans to bring its rate down to 17 percent from 20 percent.

The state secretary predicted that competition on tax rates will increase as countries align their tax regimes with the OECD's recommendations for combating BEPS and the opportunities for tax base erosion decrease. With a nominal corporate tax rate of 25 percent, the Netherlands is ill-equipped to compete in this race, making a lower rate necessary.

Wiebes, seeking to reassure those worried that the pendulum might swing too far the other way, said, “I think we all know that we won't become the discount store of Europe—I don't think we will become an Ireland.”

Legal Protection Concerns

Several practitioners at the conference said the OECD's action plan against tax avoidance raised concerns about legal protection.

Wilbert Kannekens, head of tax at KPMG in the Netherlands, said “the commotion and emotion” over tax avoidance by large companies and the BEPS “crackdown” threaten to compromise taxpayers’ legal certainty and protection.

“Especially in a situation in which we're dealing with multiple governments that are doing a lot of fair sharing,” he said.

Mark Hendriks, a partner at the Jaegers & Soons Advocaten law firm, said Action 12 of the BEPS plan, which provides for mandatory disclosure of aggressive tax planning structures, raises multiple questions about legal protection.

“What are the tax-minimizing structures? Who will have to report them? Say you indeed report them. What about the right against self-incrimination?” he asked.

Noting that a Dutch law would be needed to implement this recommendation, he said, “We're going to have a bitter pill in legal protection there.”

Bigger Role for Practitioners

Also speaking at the Amsterdam conference, Frans-Jozef Haas, a justice with the Court of Amsterdam, said tax advisers needed to take more responsibility in light of the European Commission's multiple recent state aid rulings.

EU regulators recently qualified fiscal deals the Netherlands and Belgium struck with companies like Starbucks Corp. and Anheuser-Busch InBev NV as illegal state aid, and investigations into deals Ireland and Luxembourg concluded with Apple Inc. and Amazon.com Inc. are pending.

The European Commission's ruling that Luxembourg's deal with Fiat Chrysler Automobiles NV constituted state aid was made public June 9 (112 ITM, 6/10/16).

The burden is now on tax advisers to ask themselves whether what they are advising companies may later be qualified as unlawful state aid and potentially be recouped by an EU member country. “This is where the adviser enters the picture. He needs to tell his client: ‘Careful, you have this problem here.' ”

‘Political and Emotional Factors.'

Practitioners, however, retorted that too many veils shroud the EU application of state aid rules.

“The process of state aid and how it is handled by the European Commission is incredibly foggy to me. Nobody is able to get a handle on this—not even the European Parliament,” Kannekens said.

Adding that the commission's directorate-general for competition is staffed by a dozen workers who are expected to comb through some 10,000 rulings, he said, “this cannot but lead to arbitrariness.”

Too many “political and emotional factors,” moreover, are muddying what should be a legal question, Kannekens said. He cited the uneasy relationship between the EU and the U.K. as a prime example, with the country preparing to vote on whether to remain in the EU in a June 23 referendum.

“Does the European Commission today have the audacity to accuse England of state aid when a Brexit is just around the corner?” he asked.

To contact the reporter responsible for this story: Linda A. Thompson in Brussels at correspondents@bna.com

To contact the editor on this story: Molly Moses at mmoses@bna.com