The Netherlands, a Tax Avoidance Center, Tries to Mend Its Ways

THE HAGUE, Netherlands — The Netherlands wants you to know that it is not a tax haven. But Menno Snel, the country’s No. 2 finance official, grudgingly acknowledges that the Dutch have become experts at something else: aggressive tax planning.

That’s backed up by the amount of money pouring across its borders. For tax avoidance purposes, the Netherlands offers the respectability and safety of a European country, while allowing big multinationals, such as Google and Ikea, to move global profits through Dutch subsidiaries, drastically lowering their tax payments.

The atrium of the Dutch Finance Ministry, where Snel works, is even adorned with full-grown potted palms that give it a whiff of a tropical tax haven. The suggestion of any parallel is probably unintentional.

In any case, the Dutch position as a tax avoidance center could be about to change. In a major reversal, the Finance Ministry this week submitted proposals to Parliament that would shut down the benefits that made the Netherlands a magnet for international corporations — especially U.S. ones, like Netflix, Nike and Uber. Debate on the measures is expected to continue through December.

Under the proposals, the Netherlands plans to impose levies on profits being transferred to tax havens and to block companies from exploiting inconsistent national laws to take the same deduction twice. Whether those proposals will get past the array of accountants, lawyers and consultants who help foreign companies reduce their tax payments, and who have voiced opposition to the changes, is not yet clear.

Snel, whose formal title is state secretary of finance, said in an interview, “We must be fair in recognizing that some companies are misusing the open tax system that the Netherlands has.”

Amid a popular backlash against what many see as multinationals gaming the system, tax change has been a hot political issue in the Netherlands this year. In addition, legislators must close loopholes to avoid breaching new EU rules that take effect in 2019.

Tax cuts in the United States also affect the appeal of the Dutch system. At the same time, new rules passed in Washington make it harder for companies to stash profits overseas.

As a relatively affluent member of the eurozone, the Netherlands offers a reliable court system and lack of official corruption not always present in island tax havens. It also boasts a comprehensive network of tax treaties with almost every nation, and little or no tax on money passing through the country. It is easy to move money in, and easy to move it out.

Those business-friendly practices help explain why the Netherlands, with a population of 17 million, attracts more foreign investment than some much larger countries, like France and Germany. In 2017, the Netherlands ranked fourth worldwide in the amount of foreign direct investment into the country.

Those huge inflows “suggest that the country’s tax rules are used by companies that engage in ATP,” the European Commission said this year, referring to aggressive tax planning.

The Netherlands has been especially popular with U.S. corporations. Google and IBM have big presences in the country, as do service providers such as the law firm Baker McKenzie and the accounting company Deloitte. Fiat Chrysler is technically a Dutch company. Nike has its European headquarters in Hilversum, just south of Amsterdam.

Nike has used the Netherlands to significantly reduce the taxes it pays on sales outside the United States, according to the International Consortium of Investigative Journalists. (The New York Times is a member of the consortium.)

The sports apparel maker used a common, legal method of shifting profits to a tax haven, according to the consortium’s research. First, it allocated ownership of its “swoosh” trademark and other intellectual property to a subsidiary in Bermuda, which has no corporate income tax. Then, its subsidiary in Hilversum paid royalties for the use of the trademarks to the Bermuda unit. The royalties counted as business expenses and in that way avoided taxation in the Netherlands.

“Nike fully complies with tax regulations, and we rigorously ensure our tax filings are fully aligned with how we run our business,” the company said in a statement to The Times.

At least until recently, the Dutch Finance Ministry was a willing enabler for such arrangements. Corporate accountants and lawyers could call at the ministry for preapproval of their strategies. The Netherlands long justified its laws by arguing that they encouraged multinational companies to establish their headquarters in the country, creating jobs and investment.

More recently, however, legal thinking and public opinion have turned.

Officials in Brussels have accused the Netherlands of violating the EU’s rules by helping Ikea to shear its tax bill. And polls show that Dutch voters have become increasingly angry at what they see as special privileges for wealthy corporations paying little or nothing — middle-class residents of the Netherlands, by contrast, can easily pay more than half their income in taxes.

In national elections last year, almost all the major political parties promised change. And the public anger has provided political impetus for the government.

Snel, a member of the Democrats 66 party, a socially liberal partner in the governing coalition, is credited by many activists for pursuing the task with more zeal than his predecessors.

“Menno Snel is being more proactive and more constructive in addressing tax avoidance,” said Francis Weyzig, a tax policy expert in The Hague for the charity Oxfam, which argues that island havens steal revenue from developing countries. “Definitely, there has been a change.”

For example, Snel has proposed measures to prevent companies from exploiting inconsistencies in national rules that allow profits to fall through the cracks, avoiding taxation.

Other provisions he has proposed oblige lawyers and accountants to disclose information about questionable arrangements. The Netherlands will also limit the size of deductions that companies take for interest payments, a measure aimed at another popular method for shifting profits to tax havens. In that arrangement, firms take out loans in low-tax countries but allocate the interest to the Netherlands, where it is deductible as an operating expense.

But tax is a big business for the Netherlands, leaving open the possibility that vigorous objections from multinationals could weaken efforts to retool the system. Companies are unlikely to stop looking for ways to minimize their bills, and for countries to help them do it. And not everyone believes that the Netherlands is ready to forsake a legal structure that has helped make the country a hub for international corporations. The Netherlands Foreign Investment Agency still advertises on its website that the country offers “a supportive corporate tax structure.”

“The Netherlands is not serious about ending its tax haven status,” said Sven Giegold, a German member of the European Parliament who is the Green Party’s spokesman on tax policy. He noted that the Netherlands had resisted attempts to prevent European countries from competing to have the lowest corporate rate.

Amsterdam, The Hague and other cities in the Netherlands are also home to tens of thousands of lawyers, accountants, notaries and other experts who specialize in the construction of intricate tax avoidance plans with colorful names like “the Dutch sandwich.” That industry, along with lobbyists for big corporations, has not given up trying to dilute the proposals.

“Companies that want to come to the Netherlands and set up a genuine business — the question is whether you would scare them off by being too strict,” said Bartjan Zoetmulder, a tax partner at Loyens & Loeff, a big Dutch law firm.

So far, there are no signs of mass unemployment among the thousands of Dutch lawyers, accountants and notaries who specialize in working with foreign corporations. Many young people still regard tax advising as a lucrative career with a future, a sign they do not expect the changes to undercut the appeal of the Netherlands.

Enrollment in courses for budding tax consultants “has never been so high,” said Jan van de Streek, a professor at the University of Amsterdam who teaches tax policy, with a hint of chagrin.

Critics have dismissed some of the efforts as feeble. New rules would require businesses registered in the Netherlands to have real operations, but companies would qualify if they have an office and an annual payroll of 100,000 euros, or about $115,000 — a low bar.

And lately there has been public outrage over an exemption for shareholder dividends that is seen as benefiting Shell and Unilever, two of the Netherlands’ biggest corporations, at the expense of ordinary citizens.

Snel said that Dutch officials would continue to consult with businesses, but would apply stricter standards that were either in place or would go into force in coming years. And the secrecy is over. The Netherlands has already begun sharing information with other countries.

“We don’t want to be seen as tax evaders,” Snel said. “We pay our taxes.”