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  • Writer's pictureChuka Nwanazia

Is the Netherlands really a Tax Haven for Multinationals?

European Central Bank in Frankfurt

When you talk about tax havens, most people think of tropical countries such as the Cayman Islands, Seychelles and Belize: where multinationals and the rich store their money because their tax rules can be quite advantageous. In recent years, it had been increasingly said that the Netherlands is also a tax haven. How right is that?

Recently, research commissioned by the EU Greens (once again) shows that the Netherlands is a true tax haven for large companies. According to the EU law, a profit tax rate of 25 percent applies to these companies. But according to this research, the real rate is only 10 percent. Dutch GroenLinks MEP, Bas Eickhout, thinks the tax benefits for multinationals are outrageous: “This study once again emphasizes that the Netherlands and other EU member states hugely favour big companies while they put too much weight and burden on EU citizens and small and medium-sized businesses. They pay the official tax rate, for example on their wages."

The study also shows a big difference between the official nominal tax rates and the effective tax rates for large companies between 2011 and 2015, with Luxembourg taking the lead. There, multinationals would have to pay 29 percent but will not get any further than a meager 2 percent profit tax. The Netherlands, where research has been done on 3,571 companies, is also among the countries where the differences are large, as are Belgium (14 and 34 percent), and countries with the largest economies in Europe, Germany (20 and 30 percent) and France (17 and 33 percent). The research carried out by the European Greens was done in 28 member states of the European Union. It also shows that in many countries, large companies pay relatively less tax than small companies.

"These figures again indicate that there is something terribly wrong with the way large companies are taxed," Eickhout said. "Multinationals are benefiting from the countless possibilities to reduce their tax payments to a fraction of the official rate as the Commission has previously stated, with Starbucks, IKEA and Nike as examples. "It is time for Europe to join forces to also allow big companies to make a fair contribution," Eickhout added.

In the list of EU countries who have been portrayed as tax haven, Luxembourg, Malta, Cyprus and Ireland were also named.

So what is a tax haven?

Prime Minister of the Netherlands - Mark Rutte

Simply put, a tax haven is a country with a very advantageous tax system: you don't have to pay much tax on capital, income and profit. Rich people or large companies can easily benefit from this by setting up a company in these types of countries. At least they do on paper. Multinationals and wealthy people do not usually set up companies in tax havens to actually make profit, they only register a company to take advantage of those low tax rates. In most cases, there is no staff employed by these 'empty companies.'

Tax havens make it possible for companies or individuals to avoid tax. For example, while they do their real business in the Netherlands, they divert part of the profit to a company in a tax haven, for example the Cayman Islands. Although tax is paid on the entire profit, the "real" country of residence - the Netherlands - does miss out on a part of tax revenue because another part of the profit has be diverted to a tax haven.

Another criticism of tax havens is that they are used to launder money: criminals can often launder 'dirty money' - earned through drug trafficking and other crimes, and tax havens help them legally stow that money away without problems. They don't have to explain to anyone how they got the money. Some tax havens also have confidentiality policies, which means they are not required to provide information about who and which companies have registered bank accounts in their country. Tax havens are also regularly mentioned in the same breath with fraud and the financing of terrorism.

Are there direct consequences for the Netherlands as a tax haven?

No direct consequences.

The motion has no direct consequences for the Netherlands. There is a European black list of tax havens, but the European Parliament has no influence on it. Aruba, Barbados, Bermuda and the United Arab Emirates are also on the list of tax havens. But the Netherlands will have to look for ways to make sure that those big companies pay their fair share of taxes.

For now, all EU citizens are watching and waiting to see what the EU member states do to lose their reputation as tax havens.

What do you think? Let us know in the comments section.

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