New tax agreement may cost more than it yields

Erasmus School of Economics

Last week, more than 130 countries, including the Netherlands, decided to introduce a global tax rate of 15% for companies. This new agreement should generate some 125 billion euros extra in tax revenue worldwide.

Uncertainty

However, it still remains to be seen whether this agreement will actually provide the Netherlands with many more tax income. The 15% rate only applies to companies with a turnover of more than 750 million euro. In addition, the rule of paying tax in the country where your turnover is generated only applies to companies with a turnover of more than 20 billion dollars and a profit margin of at least 10%. Financial service providers, such as banks, are also excluded from the new rule.

Peter Kavelaars, Professor of Economics of Taxation at Erasmus School of Economics points out in an articlefrom NU.nl that the corporate tax rate in the Netherlands is already 25%, which is much higher than the ratestated in the agreement. ‘It is true that letterbox companies in the Netherlands pay less, but many of them have already left in recent years due to stricter rules.’

More costs than income? 

According to the cabinet's first estimate, the new rules could yield a maximum of 600 million euros, but they could also cost up to 700 million euros. So there is still a lot of uncertainty. According to Kavelaars, the fact that companies have to pay tax in the Netherlands on the turnover they make in the Netherlands can be beneficial. ‘This measure is mainly intended for large tech companies, such as Facebook and Google. They generate turnover in the Netherlands, but pay tax elsewhere. It is not yet clear exactly how much this will yield.’

Kavelaars also explains that the new regulation will probably create new work. ‘Tax advisers will have to help companies find their way around the new rules. In addition, I do not expect Dutch companies to leave.’

Professor
More information

The full article from NU.nl, 21 July 2021, can be found here (in Dutch).