Dutch government to tackle international tax avoidance

The Netherlands will improve tax transparency and update tax treaties with low-income countries and low middle-income countries. Tax treaties with Zambia and 22 other poor countries will be revised to allow the incorporation of anti-abuse clauses where necessary. This was announced by Ploumen, Minister for Foreign Trade and Development Cooperation and Weekers, State Secretary for Finance in a letter to the Dutch Lower House in which they also responded to studies by SEO Amsterdam Economics (SEO) and the International Bureau of Fiscal Documentation (IBFD).

The Netherlands has tax treaties with over 90 countries. The studies show that these international treaties of the Netherlands are not out of line compared to tax treaties of other countries. However, the tax treaty with Zambia, stemming from 1977, is outdated, and most treaties comprise no anti-abuse clauses. This, among other things, means that their unintended use continues to be a risk in the Netherlands.

Ploumen: ‘By making use of loopholes in tax treaties in combination with differences between national tax rules, internationally operating companies can avoid paying tax. It means that poor countries miss out on tax revenues, funds they clearly need for matters such as infrastructure and education.’

The Netherlands wants to help developing countries put a stop to this loss, preferably by means of internationally binding measures.

Weekers: ‘The Dutch government favours a worldwide tightening of the rules and greater transparency through consultations in the OECD, G20 and the EU. Measures taken by the Netherlands on its own cannot prevent companies from using a different route; they merely shift the problem. But there are some things we can do. And so we will focus our efforts on improving transparency.’

The government is taking the following measures:

General measures

  • The substantial activity requirements (companies must run genuine risks in the Netherlands and the actual management of the company must be conducted in the Netherlands) will apply to more companies.
  • The Netherlands will inform its treaty partners spontaneously when, in retrospect, a company turns out not to meet the substantial activity requirements. Thanks to this improved information exchange with the source country, that country will be in a position to deny the treaty benefits to a company.
  • Information exchange will also apply to particular financing companies that have obtained advance certainty.
  • The Tax Administration will process requests for a tax ruling from holding companies (these companies receive dividends from non-residents and pay out dividends to non-residents) only if the group in which they operate has sufficient ties with the Netherlands.

Specific measures aimed at low-income countries and low middle-income countries

  • The Netherlands will suggest to Zambia that the treaty, dating from 1977, be renegotiated and that anti-abuse provisions be included in the new treaty. The Netherlands will also approach the other low-income countries and low middle-income countries to see if they wish to add anti-abuse clauses to the existing treaties. In concluding new treaties, what anti-abuse clauses they could incorporate will be given careful consideration in close consultation with the partner countries. As a follow-up to the IBFD study mentioned above, the tax treaties with other developing countries will be reviewed to see if they might be conducive to unintended risks of tax evasion.
  • The Netherlands provides technical assistance to strengthen tax administrations in low-income countries and low-middle income countries so that they can collect more tax revenues, reduce the number of unnecessary tax exemptions and combat tax evasion and tax avoidance. This support will be expanded wherever possible. If necessary, the government will release extra funds for this purpose.