With Elections Looming, Dutch Lawmakers Catch Tax Fever

Trust Bloomberg Tax for the international news and analysis to navigate the complex tax treaty networks and global business regulations.

By Linda A. Thompson

The Netherlands, the country Barack Obama once branded a tax haven, wants to be a tax haven no more.

If the throngs of Dutch lawmakers running for the upcoming general elections have their way, the Netherlands will shake off its reputation as an attractive layover destination for companies interested in slashing their tax bills.

Combating tax avoidance and evasion has never been higher on the electoral agenda of Dutch political parties, with just weeks left before the Dutch head to the polls on March 15. From calls for a common European tax base to public country-by-country reports of taxes paid and profits earned, corporate taxation is garnering more attention from Dutch lawmakers ahead of parliamentary elections than it ever has in the past.

Except for the far-right anti-immigration Party for Freedom (PVV), all the major contenders in the Dutch elections mention tax avoidance in their electoral programs—a first. Even the liberal pro-business People’s Party for Freedom and Democracy (VVD) acknowledges in its election program that tax avoidance and evasion exist and that abuses should be tackled at the international level.

“Whether to the left or right, every party is expected to have an opinion on this,” Raymond Luja, a tax law professor at Maastricht University, told Bloomberg BNA in a Feb. 20 phone interview.

Compared to the attention paid to the issue in the previous 2012 elections, “tax avoidance isn’t a sort of side issue; it’s really become an important topic,” Jasper van Teeffelen, a researcher at the Amsterdam-based Centre for Research on Multinational Corporations (SOMO), told Bloomberg BNA in a Feb. 15 phone interview.

A Seat at the Table

Lawmakers, researchers say, are simply heeding the increased public outrage in the Netherlands over the legal strategies companies use to slash their tax bills.

According to a December 2016 poll organized by the advocacy group Action Aid, 82 percent of the Dutch, for instance, oppose tax avoidance by companies and wealthy individuals. Also, 43 percent said they would “perhaps” be more inclined to vote for a party if it “planned on cracking down on letterbox companies in the Netherlands"—a reference to companies that establish a domicile in a tax-friendly country with just a mailing address in order to minimize tax liability.

In contrast to the two-party system of countries like the U.K. and the U.S., the Netherlands’ electoral landscape is highly fragmented, with 28 parties currently competing for the 150 seats in the House of Representatives, which passes new legislation and thus decides which campaign ideas are enshrined into the country’s tax laws.

Since no party is expected to obtain the 76 seats required to obtain a majority in the House of Representatives, several parties will have to form a government coalition. Yet in a January interview, Prime Minister and VVD top candidate Mark Rutte ruled out forming a coalition with the PVV. That means commentators only see two certainties: VVD, currently leading the polls, will get a seat at the coalition table, and PVV, the second-largest in the polls, won’t.

Further Steps

Citing the extensive media coverage of the 2014 LuxLeaks scandal and the 2016 Panama Papers revelations and the resulting increased public awareness of corporate tax avoidance, Van Teeffelen expects the next Dutch cabinet to intensify anti-tax avoidance efforts, no matter who wins the elections.

“I expect more action rather than a sort of a reversal of things because you can see a trend toward action and awareness” both in the Netherlands and in Europe, he said.

This view was echoed by Francis Weyzig, a policy adviser on tax justice and economic inequality at Oxfam Novib, the Dutch affiliate of the international organization, as well as a member of the OECD’s base erosion and profit shifting monitoring group.

“It’s really likely that further steps will be taken against tax avoidance, it’s just hard to say which ones,” he said in a Feb. 17 interview, noting that the handful of parties leading the polls have divergent views on how to tackle tax avoidance.

Parties like the Socialist Party (SP), for instance, propose focusing on combating tax evasion and avoidance by letterbox companies, while others like the Christian Democratic Appeal (CDA) don’t want the Netherlands to go it alone and call for the corporate tax rules to be rewritten at the European level to ensure that taxes are paid where value is created.

Though he noted that the winning parties would likely have to compromise on their key issues—whether taxes, pensions or the environment—as part of the government formation negotiations, Weyzig said it was possible that “those parties that want to tackle tax avoidance completely get their way.”

Investment Climate

Still, Dutch employers expect the next cabinet to continue heeding the importance of the Dutch investment climate.

Dirk Jan Sinke, who specializes in tax affairs at the Confederation of Netherlands Industry and Employers (VNO-NCW), said the group expects the next government to implement the EU Anti-Tax Avoidance Directive but not go beyond the “European minimum standards.” The organization represents some 120,000 companies, accounting for 90 percent of private employment in the Netherlands.

In a Feb. 20 interview, Sinke said that if the subsequent government continues participating in Organization for Economic Development and Cooperation, and European Union efforts to combat international tax evasion, the employers’ organization “expects and of course is counting on the new cabinet to continue thinking about how the Dutch investment climate and our international position can be further strengthened.”

Citing efforts to expand the corporate tax base at the EU level, he said he also expected the newly elected lawmakers to reduce the Dutch headline corporate tax rate.

“In the long run, the Netherlands will have to join this downward international trend, but that doesn’t at all mean this has to be a race to the bottom,” he said.

$4 Trillion

According to figures from Oxfam Novib, Netherlands is home to 14,400 letterbox companies, while a 2013 study by the research firm SEO Economisch Onderzoek estimated that letterbox companies shifted approximately 4 trillion euros ($4.22 trillion) in profits through the Netherlands in 2011.

A December 2015 study by the European Commission found that of all 28 EU member states, the Netherlands had the highest number of structures and indicators enabling aggressive tax planning.

Corporate Tax Rate

A lowered corporate income tax rate, which currently stands at 25 percent, is unlikely since only VVD argues for such a reduction, while three parties—the Dutch Greens (GroenLinks), SP and Labour Party (PvdA)—recently argued for a rate hike in a recent electoral debate focused on tax justice.

However, Luja says, the Dutch corporate tax base is likely to be expanded under initiatives already adopted and future ones being developed at the European level to combat base erosion. Several Dutch parties, both on the left and right, have pleaded for an interest deduction limitation, which he notes European countries must implement under the first Anti-Tax Avoidance Directive, or ATAD, recently adopted by the European Commission. The resulting expanded tax bases, he said, “open the door for a rate reduction in the future.”

“A rate reduction without an expanded tax base does not appear likely to me,” he said, adding that VVD, almost certain to be part of the next coalition, would likely have to make compromises to obtain a rate reduction.

“You’re likely to get something along the lines of: ‘We succeeded in bringing down the rate, but we simultaneously managed to expand the tax base,’” he said.

Pressure for Stronger Anti-Avoidance Legislation

The degree to which new measures against tax avoidance are taken, Van Teeffelen added, will depend on the extent to which the next cabinet includes left-wing parties.

“That’s very clear: parties on the left are against tax avoidance and treat it as an important issue, and parties on the right aren’t interested in this and have little ambition to tackle tax avoidance,” he said.

The past four years, in which VVD governed together with a number of centrist and leftist parties, offer some clues as to what a future coalition with VVD will bring. Especially in the last few months, a handful of parties on the left formed majorities in the House of Representatives, passing motions that put pressure on the finance minister to propose anti-tax avoidance legislation.

Weyzig said the warring could foreshadow what the next four years will bring, considering the warring between the VVD and a handful of other parties over Finance Minister Jeroen Dijsselbloem’s plan to postpone implementation of European hybrid mismatch legislation until 2024 over job losses concerns.

“You see this battle here between VVD on the one hand, which is trying to stave off some reforms for as long as possible, and on the other a coalition of six, seven, eight parties in the House of Representatives that think that tax avoidance should be combated more speedily and more aggressively,” he said.

VVD: Don’t Go It Alone

Aukje de Vries, a House of Representatives member for VVD, said the party supported initiatives aimed at exchanges of information between countries’ tax authorities, such as country-by-country reporting and tax rulings, as they produced “useful information and that’s important to help combat tax avoidance.”

In a statement e-mailed to Bloomberg BNA Feb. 16, she warned that it’s important to let the Dutch anti-tax avoidance measures already adopted play out.

“It’s time for other countries on the international playing field to show that they’re really going to take measures,” she said, as going it alone would simply cost the Netherlands jobs.

“I don’t think we should keep getting at each other with all sorts of new proposals,” she said, noting that the party opposed the Common Consolidated Corporate Tax Base and CCTB proposals as well as a European minimum rate.

Dark Horse

PVV calls for a wide range of measures aimed at combating the “Islamization” of the Netherlands and mass immigration. Although the party calls for lower income taxes and a lower motor vehicle tax, it makes no mention of corporate taxation measures in its one-page election program.

“We just don’t know what direction they want to go in when it comes to tax avoidance,” Luja said.

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

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request International Tax