What do the Netherlands, the British Virgin Islands, the Cayman Islands and Bermuda have in common? Right, there are all part of the top four tax havens according to the Tax Justice Network. How did they reach this conclusion and is it a righteous one? In an interview of the Dutch radio programme De Ochtendspits from BNR Nieuwsradio, Professor of Economics of Taxation at Erasmus School of Economics Peter Kavelaars dives into the analysis of the Tax Justice Network.
Fourth place in the Corporate Tax Haven Index is no achievement to be proud of. However, this ranking of the Netherlands is not fully deserved, according to Kavelaars. To justify his assertion, he gives some reasons. Firstly, the Netherlands is no tax haven with a corporate tax rate of around 25%. Furthermore, we have taken lots of measures during the last few years that have been entrusted upon us by the European Union and the Organisation for Economic Co-operation and Development (OECD); we have followed up these regulations accordingly.
The analysis which makes it appear that the Netherlands still belong to the top four of tax havens, is mostly focused on specific situations. Some of the examples mentioned, are that cash flows such as royalties and interest payments are not taxed; for years this has indeed been the case, but legislation has been passed this year to start taxing these cash flows accordingly with an average rate of 25%, which is a relatively high rate to tax these types of cash flows. Given that this is the case, Kavelaars is strongly convinced that these cash flows that have earlier not been taxed will dry up in the foreseeable future.
The utilized methodology is quite inapprehensible, which makes it hard to fully understand why The Netherlands is so high up on the list. In comparison with other European member states, the tax burden even is above average. In addition, the Netherlands is very transparent: companies have to share lots of information with the tax authorities, which then will be exchanged with other countries in the case of multinational companies. Kavelaars emphasizes that the analysts could and should have taken a closer look at recent developments in the Netherlands, which would have led to a more complete and favourable image.
However, the Netherlands can certainly increase their efforts still. Kavelaars points to a withholding tax on interest, royalties and dividends as an example. This tax is only being levied right now in the case of shell companies. If we were to expand this measure and only lower the tax rate in case of an outflow of cash to another country which taxes accordingly and adequately, we would move into the right direction. Kavelaars adds to this the delicate remark that there probably is enough support for this measure.
The hiatus of the digital economy
An important aspect of the economy that has been overlooked by the researchers, is the upcoming digital economy. If a digital company is not based in a country, it is really hard to tax these companies on the profits that they make; this mostly is a problem in other countries than the Netherlands, since such companies are not really present in the Netherlands. This implies that the image drawn by the researchers is distorted, since the Netherlands outperforms other countries in this sense. If this type of companies aren't physically based in a country but do make a lot of revenue in that country, levying taxes is really hard. However, this is an important subject on the agendas of many countries.
- More information
You can listen to the full interview at BNR Nieuwsradio, 9 March 2021, here.