The Netherlands' role as corporate tax haven a "stain on the nation's reputation"

As Europe, the US, and other countries continue to face sluggish economies in the midst of extraordianarily high corporate profits, substantial accumulation of new wealth in the hands of even fewer people, and inordinate influence of corporatist approaches on democratic governance, a public backlash is growing and legislatures are beginning to notice.

Here in the US, President Obama’s second inauguration speech acknowledged the necessity of cooperative approaches to the dire problems we face today.  Those problems– poverty, limited opportunity due to lowerclass status, lack of educational access, climate change and infrastructure needs–all relate to the increasing inequality among our people, the ability of the wealthy to buy secure and safe lifestyles for themselves while the majority are left to struggle with potential loss of jobs, homes and health.  People are starting to notice the inordinate power of huge multinational corporations and their owners due to the influence of wealth and the way the wealthy have been able to capture almost all of the gains of the last few decades for themselves.  Perhaps we are on the cusp of a new populism that will reclaim the American economy and the American system for ordinary people.

In the Netherlands, the backlash against unfair tax policies may be happening even more clearly than here.  The Netherlands has become an infamous tax haven for corporate giants (renowned for using the “Dutch sandwich” structure to avoid taxation).  Yahoo’s arrangement, described by Jesse Drucker in a Bloomberg story today, illustrates the problem perfectly.

Inside Reindert Dooves’ home, a 17th century, three-story converted warehouse along the Zaan canal in suburban Amsterdam, a 21st-century Internet giant is avoiding taxes.  The bookkeeper’s home office doubles as the headquarters for a Yahoo! Inc. (YHOO) offshore unit. Through this sun-filled, white walled room, Yahoo has taken advantage of the law to quietly funnel hundreds of millions of dollars in global profits to island subsidiaries, cutting its worldwide tax bill.

The Yahoo arrangement illustrates that the Netherlands, in the heart of a continent better known for social welfare than corporate welfare, has emerged as one of the most important tax havens for multinational companies.

Jesse Drucker, Yahoo, Dell Swell Netherlands $13 Trillion Tax Haven, Bloomberg.com (Jan. 23, 2013).  Many of the Dutch companies created by MNEs like Yahoo, Google, Merck, and Dell are sham companies that “only exist on paper”.  $10.2 trillion dollars went through 14,300 of those sham companies in 2010. Id.  Merck has 54 subsidiaries in the Netherlands and routed more than 7 billion euros in royalties between 2002 and 2010 through an Amsterdam subsidiary that has no employees.  Id.

The Labour Party and People’s Party for Freedom and Democracy took power in November and are “fed up with these so-called PO Box companies”, according to a parliamentarian from Labour.  Id.  Another parliamentarian (from the Dutch Socialist Party) noted that while governments are cutting their budgets, multinationals are avoiding taxes, and the Netherlands is functioning as a connecter to the tax havens.

The anti-tax avoidance concern is growing across advanced nations. As the article notes, the European Commission, has also noted the problems with tax avoidance and evasion and has advised its member states to adopt anti-abuse rules.  Similarly, the OECD is discussing a proposal to make it harder for companies to use shams like the Dutch sandwich structure to shuffle profits into tax haven islands and avoid taxes in OECD countries.  And the UK has scheduled a second parliamentary hearing this month on the issue.  Id.

Tax treaties are supposed to protect companies from double taxation on the same income by two different jursidictions, but tax lawyers have developed sophisticated structures that allow companies to enjoy double non-taxation.  The article describes Dell’s use of a Netherlands subsidiary (with no Netherlands employees) to claim credit for about three-fourth’s of Dell’s worldwide income and achieve substantial tax savings–about $4 billion since 2004.  Id.  The US Is challenging Dell’s claim that it is appropriately using the Netherlands and Singapore arrangement to avoid US taxes.

And of course these same MNE giants are the ones that are accumulating billions overseas on which they are seeking special legislation to allow them to repatriate cash to the US at low (or negative) taxes. See earlier ataxingmatter posts on this issue.

Hopefully, even the Republicans in Congress will realize that this corporate game of tax avoidance using international subsidiaries that have no employees is a sham and will take action to eliminate loopholes that permit hugely profitable companies to pay minimal corporate taxes.