Ministry of Finance: Automatic exchange of information to tackle tax evasion

Dijsselbloem, Dutch Minister of Finance signed a declaration on October 29, 2014 in Berlin together with other 51 countries on automatic exchange of tax information. Netherlands will receive from these countries information about possible Dutch taxpayers. Netherlands will also provide information on possible foreign taxpayers.

Dutch financial institutions are going to report information to the tax authorities as they do for FATCA. The administration then passes this information automatically to the countries that have committed to the Common Reporting Standard (CRS).

On the above date, 48 countries have first committed to the exchange of information based on the CRS in September 2017. Three countries also indicated that they are going to start exchanging information basing on CRS by September 2018.

“The Netherlands is at the forefront when it comes to tackling international tax evasion. The CRS is a big step forward at a global level,” said Minister Dijsselbloem.

The statement is signed based on the WABB Convention. The commitments in the CRS to report to the tax authorities are spelled out in national laws and regulations. From September 2017, the Dutch Department of Revenue and the tax authorities of the countries from the leading group will start exchanging financial data exchange basing on the CRS.

The data will be exchanged in 2016. Dutch financial institutions have to identify their customers identify from January 1, 2016, based on the CRS and identify where their customers are residents and where are they therefore subject to tax on their income. Both individuals and companies are identified based on the CRS and possibly reported.

The Court of Audit: Fiscal rules in the Netherlands not exceptional, but favourable for international companies

Data from the Department of Revenue shows that the internationally operating companies, which declared their taxes in the Department of Revenue in Rotterdam, did not pay the 15% dividend tax, but less than 1% thanks of tax agreements and European regulations functioning in the Netherlands. In the past decade, the amounts of dividends, interest and royalties earned in the Netherlands increased significantly.

The House of Representatives does not have an integrated picture of the tax settlement policy in relation to tax avoidance by companies. This are the findings of the Tax Avoidance report – an in-depth study of tax avoidance in relation to the tax regulations and treaty network, which was published by the Audit Court on November 6, 2014. This study was requested by the House of Representatives.

Unintended effects of tax avoidance can be countered only through international agreements. The Department of Revenues maintains thorough monitoring on internationally operating companies, according to the review of the Court of Audit. Prior agreements with companies are in line with the House of the Representatives.The Department of Revenue strictly maintains the rules and policies. About 30% of the eligible companies choose to make such agreements in advance through a so-called ruling. Since this year, the Department of Revenues controls more intensively and also, a larger number of those companies (also so-called “schakelvennootschappen”, special purpose entities (SPEs) and mailbox companies) whether they meet the conditions, the substantial requirements. This involves the question of whether a company is present in the Netherlands in order to be allowed to use the tax incentives. Results of these additional controls are not there yet.

The Department of Revenues does not track the total amounts involved in exemptions from withholding tax, interest and royalty’s, due to tax agreements. The House of Representatives does not have an overall picture of the results of the business location principle. The Audit Court recommends to the government to inform the Chamber henceforth by default about how abuse or improper use is prevented in regards to each new tax agreement. If the House asks for the reliable data on annual flows, the Financial Secretary will have to provide it.

Countries usually strive for an equitable distribution of taxation among citizens and businesses, but also to a fiscally attractive business climate and a favourable economic environment. This results automatically in tax competition. It means that the international corporate tax rates are dropping. By introducing facilities for, for example, innovative companies (like “innovatiebox” in the Netherlands), the tax base (the base on which corporation tax is calculated) also narrowed down. Thanks to tax competition, especially international companies, which conduct business in many countries, are able to structure part of their activities in such a way that they pay as little as possible corporate and withholding tax. As internationally operating companies can pay less tax on their profits, this affects the distribution of the tax burden on and between individuals and businesses in all concerned countries. Small and medium size companies have less opportunities to plan or avoid because they are usually active only on the national level and thus a competitive disadvantage is encountered in the form of higher tax on their income in comparison to internationally operating companies. Developing countries can also encounter a disadvantage if they collect less withholding tax because they agreed in tax agreements on a lower tariff for the withholding on outgoing dividends, royalties and interest.

The volume of funds that flow through companies to our country is increasing. Incoming dividends from € 13.1 billion to € 72.7 billion (2004-2012), outgoing dividends from € 25.6 billion to € 53.7 billion (2006-2011). Incoming interest from € 16.4 billion to € 29.6 billion (2003-2012) and outgoing interest from € 7.1 billion to € 14.1 billion. Incoming royalties from € 5.4 billion to € 18.5 billion (2003-2011) and outgoing royalties € 4.4 billion to € 13.3 billion (source: DNB). The Audit Court recommends the government to periodically inform the House of Representatives about these flows and the impact of measures against improper use.

The Secretary of State, Wiebes (Finance) has responded to the inquiry on the October 28, 2014. He shares the opinion that the fiscal policy is not out of line with other European countries and endorses the recommendation for international consultation on tax avoidance due to concerns about the sustainability of public finances and a balanced distribution of the tax burden. The Secretary of State offers to annually on the basis of changes in the size of dividend, interest and royalty streams that enter the Netherlands and left respectively, to give insight on the attractiveness of the business climate in the Netherlands. The Court of Audit assumes that Wiebe responds, in consultation with the Parliament, to concerns about the effects of international tax competition, partly basing on the recommendations of the Court of Audit.