Distortion of the effective tax burden for multinationals

BNR Nieuwsradio
Erasmus School of Economics

It is the first time that the government gives a comprehensive overview of the total tax payments of 155 Dutch multinationals. From now on, this will be done every year, starting with 2016. Companies then made a profit of 24.8 billion euros on which they paid 2.6 billion euros in profit tax.

According to State Secretary Hans Vijlbrief, the numbers do not allow to conclude that multinationals only paid 10.6 percent tax on their profits, while the rate for profits above 200,000 euros is presently 25 percent. Peter Kavelaars, Professor of Economics of Taxation at Erasmus School of Economics, indicates that there are two problems in the calculations, which must be considered in making the interpretation. Namely losses and double counting.

Losses & double counts

The international method used does not take into account profits made by participating interests, such as subsidiaries. This results in double counting of profits. In addition, no account is taken of the possibility in the Netherlands to deduct losses from the past from current profits. As a result, reported profits are too high.  Both double-counting and the offsetting of losses therefore lead to an overestimation of earnings, for which a correction must be made, concludes Kavelaars.

Effective tax burden

When these deviations are taken into account, the effective tax rate for multinationals amounts to 21.7 percent. This percentage is still lower than the agreed VPB rate of 25 percent. According to Peter Kavelaars, this is due to all kinds of tax deductions and special arrangements, which can result in a slightly lower effective tax burden. For the coming years this tax pressure will decrease further. Where the rate is still 25 percent this year, it will drop to just over 21 percent next year. It can be assumed that it will all be a little lower in the coming years, says Kavelaars.

Professor
More information

Listen here to the entire item on BNR Nieuwsradio, 8 July 2020 (in Dutch).