According to new research conducted by Het Financieele Dagblad, a leading Dutch financial newspaper, the Netherlands are quickly becoming one of the most popular jurisdictions used by multinational corporations for international tax planning. The report shows that out of the 100 largest companies in the world, 80 make use of Dutch entities for tax planning.

The detailed analysis, which was published by the newspaper on September 12th, claimed that Dutch special financial institutions (BFI) are the most widely used entity in international tax structuring. By the end of 2010 nearly 13 000 such companies had been registered in the Netherlands by entrepreneurs from around the world. In the same year, the flow of cash through the BFIs had reached EUR 10 trillion, in comparison, in 2004 the figure had only stood at EUR 4.4 trillion. The authors of the report estimated that the current cash flows in BFIs are approximately 17 times larger than the Gross Domestic Product of the Netherlands.

The international acceptance and utilization of Dutch BFIs has been attributed to the practice of exploiting tax loopholes in Dutch tax legislation, and to the tax breaks offered by national tax authorities.

Despite the colossal level of funds flowing through the entities in 2007 the government of the Netherlands saw only EUR 1 billion in tax revenues collected from the BFIs, with an additional EUR 500 million arising in associated economic activity. However there is no way to gauge the cumulative tax benefits seen by multinational companies utilizing BFIs. The significant number of entities registered in the Northlands by foreign entrepreneurs purely for the purpose of tax planning gave reason for US President Barack Obama to call the Netherlands a tax haven. However, according to international analysts the Netherlands will continue to maintain adequate levels of tax controls to prevent the misuse of national entities, but will encourage large multinational corporations to move their headquarters into the Netherlands.

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According to IMF research released on April 19th in the Detailed Assessment Report on Anti-Money Laundering and Combating the Financing of Terrorism report, the level of proceeds from criminal activities in the Netherlands is now at approximately USD 14 billion per year, equivalent to approximately 1.8 percent of the national GDP. Fraud and tax fraud are currently seen as making up a significant portion of the criminal profits. According to the report the country’s large financial sector also makes it a target for foreign fund flows for the purposes of money laundering.

The report praised the Netherlands for its aggressive and effective approach to prosecutions for the crimes of money laundering and other financial offenses. However, the country’s Financial Intelligence Unit (FIU) was brought into question, with no tangible evidence that the analytic work of the unit has made any significant positive impact on the preventing international and national criminal activity.

The legal framework applicable to financial crimes and money laundering in the Netherlands was considered to be generally adequate, but there is a perceived shortfall in relation to the definition and treatment of beneficial owners of business structures. In particular the IMF is concerned that the obligation for financial institutions to investigate and understand the business control structures of their clients only applies in high-risk situation. There is also no obligation to determine whether the beneficial owner of a client’s structure is a “politically-exposed figure”, and a remaining lack of transparency for national business entities operating under foreign control. The Criminal Procedures Code of the Netherlands should also be revised in order to class money laundering as an extraditable offense, and to provide overseas tax authorities with greater assistance in collecting evidence during the investigation and prosecution of financial crimes.

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On October 10th St Maarten and Curacao split from the Netherland Antilles, becoming constituent countries in the Kingdom of the Netherlands, gaining greater government autonomy, increased independence from the Netherlands Government, and the right to full use of their own tax revenues. Bonaire, St. Eustatius and Saba (BES), being the remaining three islands of the Netherland Antilles, have become Dutch special municipalities.

The Dutch Government has approved preliminary legislations for the BES’s tax system, which will see the effective abolishment of corporate income taxes and the introduction of a 1 percent property tax and a 5 percent distribution withholding tax. The property tax will be levied only on commercial properties with a value above USD 50 000. The distribution tax will be imposed on any corporate entity if distributions are made to its beneficiaries. The BES is also scheduled to instate full use of the US Dollar as the national currency in 2011. The moves have been branded by some as creating a new “tax haven. However, Jan Kees de Jager, Dutch Minister of Finance, has adamantly denied that the Government is creating a new “tax haven” claiming that the municipalities will be better served by the steady, predictable and dependable natures of the property and distribution taxes, as a corporate income tax is heavily influenced by global economic conditions and prone to fluctuations. He added that several legislative barricades exist ensuring that businesses based in the BES operate for legitimate reasons and do not encourage tax evasion and also support the local economies, including a mandate that says multinational companies hold commercial property in excess of USD 50 000 in the islands if creating a company.

Under the agreement for autonomous rule for the newly formed constituent countries of St. Maarten and Curacao, the Dutch Government will still hold responsibility for the foreign policy and defense of St Martens and Curacao. The Netherlands will also hold initial financial and fiscal oversight of the islands, as a condition of a debt relief deal, which will see almost EUR 1 billion granted to the islands. The two islands will share a central bank and a supreme court, leading analysts to believe that they will have similar tax systems. Currently, both constituent countries are scheduled to use the previous Netherlands Antilles tax laws until the end of 2011. As newly independent nations, the two islands will be bound to follow the European Union rules regarding harmful tax competition, which prohibit, among other things, granting tax advantages in the absence of real economic activity, reservation of tax benefits for non-residents, a lack of transparency, and tax incentives that are based on activities outside of the national economy. While speaking at the Dutch House of representatives on October 6th Ronald van Raak, member of the Dutch Socialist party, claimed that the governments of both islands wish to introduce a 15 percent corporate tax rate, but fear that the BES’s practically non-existent rates will create an unfair tax competition among the neighboring islands.

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Attempting to rectify the world’s environmental problems could be an economically crippling task if no significant advancements are made in currently available technology, according to information provided in Taxation, Innovation and the Environment, a new report on “green taxes” by the Organization of Economic Cooperation and Development (OECD). Announcing the release of the publication Angel Gurría, OECD Secretary-General, said “To achieve a greener future we need new technologies that can lower the cost of saving the planet.” He added that shifting a greater tax burden onto pollution will increase global incentives for rapidly developing environmental technology and encourage “green growth”.

The report referred to several successfully implemented environmental taxes around the world. According to the publication, in the UK there is a strong relationship between the number of patents filed by companies and their Climate Change Levy payments, demonstrating that environmental taxes encouraged creative solutions to pollution problems in the country. Similarly, in Sweden the introduction of a Nitrogen Oxide emissions tax prompted to the development of new technologies, which have so far reduced national emissions by nearly one-third. On a small-business scale, in Switzerland the tax on volatile organic substances is reported to have induced small producers to adapt currently available technologies in a more efficient manner, without the need for research and development of new solutions.

Environmental taxes often provide relatively small revenues, either due to their scope or the levied rate. However, if well designed, the taxes can have disproportionately positive effects on consumer and producer behaviors. In 2008 the Netherlands had the highest environmental tax load in the world, at only 4.49 percent of GDP. On average, across the countries surveyed, the environmental tax burden was approximately 1.58 percent. In the US, the burden was an even lower, at 0.77 percent of GDP. Conversely, Mexico actually had a -1.59 percent burden, due to its use of subsidies to control fluctuations in consumer vehicle pricing.

Subsequently the report recommends governments to appropriately inspect the impact of any tax measures, and aim them for the greatest environmental benefit, as opposed to their potential economic payoffs.

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On September 21st Jan Kees de Jager, Netherlands Minister of Finance, announced the release of the 2011 Tax Plan, which outlines the intentions of the national Government for the tax system in the year 2011. The Minister explained the primary reasons behind the plan, saying: “To ease the pain of the crisis we are making great efforts in 2011 to stimulate entrepreneurship and innovation. Because it is the entrepreneurs who are helping us back on our feet.”

The changes within the Tax Plan which are intended to encourage entrepreneurship include a 0.5 percent decrease to the headline corporate tax, from the current level of 25.5 percent. Additionally, the temporarily instated 20 percent tax rate for businesses with profits below EUR 200 000 will be made permanent. The Ministry of Finance also intends to ease liquidity positions of corporations by introducing expansions to loss carry-back facilities and an extension to arbitrary depreciation schemes. To encourage innovative product development within the national economy the Tax Plan will also make permanent the Promotion of Research and Development Act, which can reduce the wage costs associated with research and development activities through reductions of payroll taxes and social security contributions.

The new plan also outlines a series of changes which are expected yield an additional EUR 300 million in tax revenues per year by improving tax compliance and reducing tax evasion. The biggest aspect of the alterations is a significant effort by the Ministry of Finance to close loopholes in the tax system, and eliminate the use of artificial business arrangements and transactions which have previously allowed some businesses to avoid their full tax obligations. The Ministry of Finance will also be given statutory powers to exchange savings account details and bank information of suspected tax evaders with countries outside of the European Union.

According to the 2011 Tax Plan the Dutch Government will receive an approximate EUR 225 billion in taxes throughout the year 2011. If the estimates are correct and the Government carries out its planned EUR 1.8 billion of cost-cutting measures, then the next year will see the first decreases to the national budget deficit since the beginning of the global financial crisis.

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