Dutch ‘tax haven’ status challenged

Amsterdam — In the early hours of October 5 2018, Dutch Prime Minister Mark Rutte’s phone lit up with a text message: “Mark are you awake? I need to talk to you.” It was Paul Polman, then CEO of Unilever.

Polman told Dutch newspaper Algemeen Dagblad later that he sent that text because he wanted to tell Rutte about a decision made by the Anglo-Dutch personal care products company before it was made public. Unilever that day announced that it was abandoning plans to consolidate its headquarters in the Netherlands, settling instead for London.

For Rutte, who had expended a great deal of political capital to lure the company — including a hugely unpopular plan to scrap the country’s dividend tax — Unilever’s decision was a slap in the face. It set the stage for a shift in his relationship with business, one that’s playing out in his campaign for re-election on March 17.

Within weeks of Unilever’s announcement, Rutte ruled to leave the dividend tax intact, marking the beginning of a gentle tilt to the left for his right-of-centre VVD party. His re-election platform now wants to prevent “tax evasion and undesirable tax arrangements that companies use to evade taxes” and proposes a higher corporate levy. Some see the leftward swerve as a politically savvy move by the 54-year-old leader who is all but certain to win a fourth term in office, one that will make him the longest-serving prime minister in Dutch history.

“Rutte has a sixth sense for how he has to behave in crucial moments and when to alter course,” said Peter Kanne, a senior adviser at the polling firm I&O Research. The pollster’s research shows the Dutch have been inching leftward on socioeconomic issues for a couple of years.

Business friendly

Though the Netherlands is famously business friendly — making it one of the winners of the Brexit exodus out of the UK — Rutte has seized on a growing sentiment in the country that companies do not give back enough. After the Unilever saga, oil giant Royal Dutch Shell in 2019 confirmed media reports that it paid no income tax in the Netherlands and last year it was revealed that travel e-commerce company Booking.com, which pays close to no Dutch tax, received millions of euros in state support during the pandemic.

While the pandemic — with night-time curfews sparking riots in the country — is the biggest issue for voters and has sent them rallying “around the flag,” Kanne said, corporate matters are increasingly a part of the political conversation.

“People no longer accept that companies only live for their shareholders,” Hans Vijlbrief, a member of the social-liberal D66 party and deputy finance minister responsible for tax matters, said. “If they have to pay their taxes, so do companies. People see that companies or a rock band use the Netherlands to evade taxes. People don’t want to live in such a country any more.”

All Dutch parties want higher corporate taxes, their platforms show. Rutte’s VVD party is looking to raise €3.5bn more from companies, while the Labour party is eyeing as much as €40bn.

‘Tax haven’

The Dutch have one of the EU’s lowest corporate taxes and are under scrutiny from the bloc for being a conduit country, or even a tax haven. The country’s corporate tax rate is 25% for profits above €200,000.

According to the Tax Justice Network, the Netherlands ranks fourth in locations that facilitate tax evasion by multinational corporations, behind the British Virgin Islands, Cayman Islands and Bermuda. Companies from Alphabet’s Google to Uber Technologies have run transactions through the Netherlands for its favourable tax regime.

“Since the financial crisis, companies pay less tax while public services have been marginalised,” Bart Snels, a Green Party MP, said. “The Netherlands remains a tax haven.”

Things have been changing, notably with a source tax on royalties that came into effect in January and in the country’s stance on tax matters at the Organisation for Economic Co-operation and Development (OECD) and the EU: going from obstructive to co-operative, according to Arjan Lejour, professor of taxation and public finance at Tilburg University and Jan van de Streek, professor in tax law at Leiden University.

Still, opposition politicians question how far Rutte will go to rid the Netherlands of its tax-haven reputation.

Parties like the VVD “will do their utmost to make it appear that they want to make big changes but in fact they do not do much,” Henk Nijboer, an MP and fiscal specialist for the Labour party, said. Mahir Alkaya from the Socialist party added that “they have acted in words but have taken only very small steps.”

‘Twilight zone’

Rutte’s party says it has always tried to tackle tax dodgers, denying there has been a big shift in its stance.

“I have been around for 10 years and we have continuously talked about fair taxes,” said Helma Lodders, an MP and the VVD’s fiscal specialist. The challenge is to counter tax avoidance, while maintaining a good business climate.

If the Netherlands is serious about fixing its tax system, it needs to do more, say Van der Streek and Lejour. It needs a source tax for dividends, one of the biggest flows of money out of the country; should cut deduction options for companies; push for greater transparency and renegotiate some bilateral tax accords, they said.

These may be among measures Rutte’s coalition partners will bring to the negotiating table if he is to form a new government. Because while Rutte’s tax plans remain vague, it’s a Dutch certainty that he’ll govern in a coalition, perhaps with four or five parties. He has excluded joining with Geert Wilders’s right-wing PVV and Thierry Baudet’s Forum For Democracy.

That leaves him with parties on the left, suggesting that deep changes to the Dutch fiscal landscape may be inevitable for a new Rutte government.

“We are in a twilight zone now” said Vijlbrief of D66, which might be part of the governing coalition. “We have to get out of the dark side and go to the light side of the force.”

Bloomberg