Thanks to the Netherlands, the Greek treasury has lost millions
The Netherlands is a tax haven. Not for ordinary men and women, but for multi-national corporations (MNCs) who set up post-box firms in order to evade taxes. One of these corporations is Canadian concern Eldorado Gold, which is guilty of human rights abuses and causing serious environmental damage in Greece. The Foundation for Research into Multi-National Corporations (known by its Ditch-language acronym, SOMO), recently published a report on the matter. The Dutch Socialist Party monthly Spanning spoke to Indra Römgens, one of the report’s authors.
Spanning: Why is the Netherlands known as a tax haven?
Römgens: The Netherlands is a tax haven for multi-national corporations because the quantity of treaties and rules has made it possible to have money flow through our country almost untaxed. You’ve got tax havens such as the Bahamas or Barbados which serve as an end point. The Netherlands is more of a stop-over. The large number of treaties, contribution exemptions, the absence of taxation at source on outgoing interest and royalty flows and the ease with which you can sent up an ‘empty’ postbox firm make the Netherlands attractive to multinationals when it comes to transmitting investments and loans through the country.
It’s often said that the favourable tax climate for MNCs and wealthy individuals brings a great deal of revenue and employment into the Netherlands. How do you see this?
It does indeed bring jobs for people who work in legal-, accountancy- and trust offices which manage the postbox firms. But this is at most a matter of a few thousand jobs and the money we earn from this is minimal. The Foundation for Economic Research (known by its Dutch-language initials, SEO) came out in 2013 with a figure of between €1 billion and €1.5 billion in tax revenues, a paltry amount when you consider that there are 12,000 postbox companies in the Netherlands, through which €4 trillion flows each year. Moreover it must be questioned whether this estimate of €1.5 billion isn’t too high. There are sources which argue that it’s going in the direction of zero.
What are the most important consequences of tax evasion and tax avoidance by MNCs in the Netherlands for other countries and for the Dutch citizen?
There are various figures for what it means for other countries. These are always estimates, because there’s too little information in the public domain. Christian Aid has estimated that developing countries are losing €160 billion per annum. According to Oxfam they lose more income from taxation than they receive in development aid. SOMO has calculated that through the Netherlands’ tax treaties alone, twenty-eight developing countries miss out on €550 billion. So there are numerous statistics which demonstrate the order of magnitude you’re having to consider. These estimates are often conservative, moreover, because you don’t want to be accused of exaggerating. In our latest report we’ve calculated what tax evasion by a single corporation means for Greece. It’s a matter of a few million. We could only investigate one dodge, but you can be sure from this example that more exist. What makes such research difficult is that a great deal of tax avoidance takes place within corporations. They move their profits around among various subsidiaries, so that they have to pay as little tax as possible.
What this means for the citizen precisely is hard to say. One figure that’s often used is that for the EU as a whole €150 billion is last to tax evasion. For the Netherlands this would mean a loss of some €7 billion, but this is a very rough estimate. The fact is that Dutch firms also pay too little tax in the Netherlands, because they decamp to Belgium, for example, and we as Dutch citizens get the bill for this.
What could and should the Dutch government do to counter tax avoidance?
They should take action on two levels. Tax avoidance means first of all that corporations are taking advantage of differences among countries. So you always have to tackle this problem via international cooperation. The Netherlands should be working towards this actively and progressively, which does not as things stand appear to be the case, because the government gains from current practice. On the international level they need to strive to see that the gaps in the tax system are closed. Also on the international level measures must be taken, for example the imposition of taxes at source on outgoing interest payments and royalty flows. Many countries do levy such taxes, but not the Netherlands. That’s part of the reason why we have so many postbox firms.
And what measures should be taken at European or even global level to counter tax avoidance?
The existing system must be radically changed, actually. To take an example, a big problem is transfer pricing. This includes the ability of corporations look for a rough market price for transactions conducted within their businesses (such transactions account for 60% of world trade – ed.). But you can easily misuse this by stating that no price can be specified, because their product is unique. It’s hard for tax authorities to keep a close eye on this, because it’s impossible to keep track of the millions of transactions going on within a firm. From the public’s point of view it lacks all transparency, because the figures only come out in a company’s consolidated annual report. You see nothing at all about the internal transactions and how these are achieved. So you need to move to a different basis for imposing taxes and look at a corporation on the global level, looking at where the firm in question is active, where production takes place and where sales are made. On the basis of a certain formula you then know the various countries in which the corporation should come under the tax law. If a firm produces and sells, for example, so many goods in Japan, then Japan gains the right to tax the firm according to the value of these transactions, taking these taxes from the overall total profits of the entire corporation in question. This would make transfer pricing less of a problem. A less radical proposal is that multinationals should be more transparent, reporting such financial data as profit levels, turnover and taxes paid per country. You could then see where they are active and what they contribute to a society. This is known as Country-by-Country reporting. There should also be more openness regarding the ‘rulings’ – deals between MNCs and tax offices – issued by the Netherlands and Luxembourg.
Is anyone doing anything about this at the moment?
The radical solution is difficult. As things stand it isn’t achievable on the global level. Within the EU it’s true that a similar proposal has been discussed – a harmonised tax base – but in a greatly watered-down form. This transparency measure is well within the realm of possibility. Corporations will shortly be obliged within the OECD to make their data known to the tax authorities. The nest step should be that they also make them available to the public.
How does the Netherlands stand on these issues?
For the Dutch government the highest priority is that we remain an attractive country for investments. It’s not about the quality of these investments, moreover, but on their size. It is indeed said that the Netherlands wants to prevent developing countries being the victims of tax avoidance, but we don’t see much of this reflected in their policies. We also hear often that the Netherlands prevents measures being taken within the OECD, although this is denied in public statements.
Is the OECD the right level for decisions to be taken?
No, the OECD is in my view not suitable platform. It’s said that the OECD is efficient and in possession of a great deal of expertise. But efficiency is no argument, as the OECD isn’t democratic. Only thirty-four countries have a vote and the rest can participate in a discussion only if invited. If you’re not one of the countries that sits around the table, there’s a big chance that policies will be at your expense. That’s why NGOs advocate the setting up of an intergovernmental organ with a public mandate and adequate financial resources in order to facilitate negotiations in which everyone can take part.
At the end of March your report Fool's Gold, on the Canadian mining company Eldorado Gold, which is active amongst other places in Greece, appeared. Eldorado Gold uses Dutch mailbox companies to avoid taxes. Why did you choose this specific corporation as the subject of your investigation?
In 2013 we investigated the relationship between the mailbox companies in the Netherlands and human rights abuses, looking into eight mining corporations . One of my colleagues then got in touch with a Greek solidarity movement which had demonstrated in the Netherlands against the Canadian mining form Eldorado Gold, which has a mailbox company in the Netherlands and at the same time has an enormous negative impact on the environment and the local population in Greece. They asked if we’d so a similar investigation into the company’s tax practices, because they knew nothing about these. We considered this an excellent opportunity to work with Greek and Dutch social movements working for Greek citizens who are resisting the mine and as a result are being prosecuted as criminals and maltreated by the police. From our research it turned out that the Greek government had lost at least €1.7 million in tax revenues, through Eldorado Gold’s use of a complicated holding structure had passed interest revenues from its Greek subsidiary via a Dutch mailbox form on to Barbados, paying almost no tax. With this report we wanted to show that the EU and the Netherlands are acting like hypocrites, in that on the one hand they are pressuring Greece to impose deep spending cuts, with the consequence being a humanitarian crisis, and on the other are actively cooperating in tax avoidance by MNCs in Greece, which resulted in the country missing out on millions in revenue.
Is the case of Eldorado Gold a one-off?
No, this is no exception, The proof of that was provided by Eldorado’s CEO himself when he said that everyone makes use of Dutch holding companies. And that’s how it is. What this case demonstrates so well is how tax avoidance by a corporation works in practice. But Eldorado Gold isn’t an exception, because almost all multinationals have a mailbox company in the Netherlands and an agreement with the tax services.
What are the most important recommendation of your report?
One of the most important is that the Netherlands bears a certain responsibility for its tax policies, because they attract so many shady firms. The Netherlands has accommodated these companies and is given them, once again, tax advantages, so it must regulate these corporations. Another important recommendation is directed at the EU, which should be setting up a system of taxation at source for money which crosses EU external borders. Within the EU taxation at source has been abolished, but a country such as the Netherlands imposes no taxation at source when the money is destined for Barbados. You would have to therefore close the EU’s borders to money disappearing into tax havens. What this case shows is that you shouldn’t be handing this to the country itself but regulating it at European level. In addition we give a few transparency recommendations to the Dutch government and advocate exchange of information with Greece.
Tijmen Lucie is editor of Spanning. The report Fool's Gold: How Canadian mining company Eldorado Gold is devastating the environment and local livelihoods in Greece and avoiding taxes by using Dutch mailbox companies is available at http://read.somo.nl/story/fools-gold/