During a debate in the Lower House of parliament on Dutch tax policy from an international perspective, Deputy Minister of Finance, Frans Weekers, gained broad support for the government’s position on this subject as set out in a letter sent to parliament on January 17, 2013. The letter was sent in reply to parliamentary questions concerning the role of the Netherlands with regard to intermediary companies. In the letter, Weekers reiterated the government’s commitment to foreign investors, stating that the Netherlands intends to further enhance the investment climate by, for example, concluding additional income tax treaties with emerging markets. Below, we briefly discuss the letter as well as the explanation given by Mr. Weekers during the debate and look at the next steps to be taken.
The Dutch economy has always relied heavily on international trade. The government acknowledges that an important element in a competitive international market is providing a level playing field for companies. The Dutch government’s international tax policy includes a favorable participation exemption regime and no withholding tax is owed on interest and royalties. Moreover, its tax treaty policy has resulted in an extensive treaty network aimed at reducing withholding taxes and providing certainty for international business.
According to the Deputy Minister, direct foreign investment creates jobs in the Netherlands and adds substantial value to the Dutch economy. He is committed to improving the investment climate in the Netherlands.
Mr. Weekers identifies three strategies used by international companies in structuring their operations: (1) allocating profit to lower-tax jurisdictions, (2) taking advantage of differences in tax systems, and (3) the use of holding companies and intermediate companies. In his letter he outlined the government’s position on those strategies. The setting up or shifting of real economic activities to lower-tax jurisdictions is generally considered to be a legitimate way to reduce taxes, and the Netherlands has sufficient safeguards in its tax laws to protect against the shifting of profits without any real economic substance. Profit allocation based on transfer pricing is also legitimate, and the fact that there is always a range of outcomes when computing the arm’s length price for a transaction is unavoidable and acceptable.
According to Mr. Weekers, current Dutch tax rules and tax treaties provide sufficient safeguards to prevent improper use of Dutch holding and intermediate companies to reduce foreign withholding taxes and using the Dutch treaty network to reduce taxes promotes investment in less competitive countries.
Nevertheless, he recognizes that the Dutch investment climate also attracts companies that use the Netherlands solely for tax purposes. Dutch law and the Dutch treaty network apply equally to these companies, but anti-abuse measures and exchange of information are used to prevent undesirable situations from arising.
The Deputy Minister also indicated that the Netherlands will not take any unilateral steps, but will engage in international discussions on taxation and taxation rights in order to develop a lasting solution to such problems, while continuing to protect the investment climate and maintain the level playing field. This includes the OECD’s initiatives against base erosion and profit-shifting and the European Commission’s action plan to fight tax evasion and aggressive tax planning.
Next steps
The OECD will present a progress report to the G20 this summer on actions to tackle the issue of base erosion and profit shifting. A domestic analysis of how significant the non-bank financial sector is for the Dutch economy will be carried out. The results of this analysis are expected to be released this spring. This analysis and the OECD report will be debated in parliament.