Tax avoidance or tax evasion: where lies the dividing line?
Taxpayers are allowed to look for the most advantageous fiscal schemes and - as long as they don't violate any laws - this can only be a form of tax avoidance and not tax evasion. However, companies that make optimal use of fiscal rulings are often heavily criticised, as was the case with Shell quite recently. This has raised questions about where the dividing line between tax avoidance and tax evasion lies. In an interview with Nextens, Peter Kavelaars, Professor Fiscale Economie at Erasmus School of Economics, clarifies this.
Multinationals are allowed to make use of the tax rules of different countries because they have establishments in these various countries. As such, they have to deal with international tax treaties and European legislation. However, all these rules, legislation and case law are not very aligned and this raises problems. Every country namely has the freedom to create its own fiscal system and differences between countries can thus bring about advantages for internationally operating companies, as long as those companies also conduct activities in that country.
That a company needs to conduct activities in a specific country means that it is not sufficient to be a 'letterbox company'. In the past, establishing letterbox companies was not seen as a form of tax evasion because being established in a certain country should also mean that you can make use of that country's tax system. However, in the last few years, there have been many public and political discussions about letterbox companies, especially about letterbox companies that are established in the Netherlands. Under the pressure of the OESO and EU, the requirements that need to be met in order to establish your company in the Netherlands have become much stricter. As a result, the costs to establish your company in the Netherlands have become much higher than the fiscal benefits.
Just like letterbox companies, tax rulings in the Netherlands were also heavily scrutinised, especially the rulings about liquidation losses. Shell made use of this ruling by settling its foreign losses in the Netherlands. As a result, Shell did not need to pay any taxes anymore because all foreign losses could be deducted from its profits. However, even though this practice was criticised, Shell's acts were in accordance with the Dutch law, because there exists Dutch legislation that allows this practice. 'Thus, this practice can absolutely not be a form of tax evasion', says Professor Kavelaars.