The Netherlands, long viewed as the core of a system where multinational corporations minimize their taxes by shifting profits, have signaled that they are ready to support a US proposal that ends the practice.
“If the Americans initiate such a proposal and get support from big countries like Germany and France, it would be surprising if no agreement is reached,” said Hans Vijlbrief, deputy finance minister of the Dutch caretaker government after last month’s elections, in an interview on Monday. “Tax competition is a thing of the past.”
While the caretaker government has not yet taken a formal position, Mr Vijlbrief’s remarks show how the momentum for change is building and small countries will have difficulty resisting. The Netherlands has been repeatedly criticized for a regime that helps international companies lower their taxes in other countries.
In one example, San Francisco-based Uber Technologies responded to a European crackdown on offshore tax havens in 2019 with a Dutch deduction of $ 6.1 billion to cut some of its global bill for years to come.
This year, the Tax Justice Network named the country the fourth largest tax haven in the world after the British Virgin Islands, the Cayman Islands and Bermuda.
The administration of US President Joe Biden has proposed combating such tax-cutting strategies with a minimum global tax rate of 21 percent and ensuring that the world’s 100 or so largest companies pay more in places where they actually do business.
Mr Vijlbrief said he expected a deal by July. This is in line with the goals of the US and the other members of the Organization for Economic Co-operation and Development, which has been trying for years to get its 135-plus members to agree.
It would also require approval from other small nations like Ireland and Luxembourg that have used competitive taxes to attract businesses.
“We are on the side of the countries that want to make this proposal as effective as possible,” said Vijlbrief, a member of the centrist D66, the second largest political party.
He added that the Netherlands has changed its model since Prime Minister Mark Rutte of the People’s Party for Freedom and Democracy formed its third government in 2017. Rutte hopes to build his fourth government coalition even if he is fighting a scandal.
Risk of veto
Still, Mr Vijlbrief declined to say whether he would agree to the 21 percent level in the US plan. The Dutch tax rate is over 21 percent, but the government allows companies to deduct costs including patent rights and interest payments, according to Jan van der Streek, professor of tax law at Leiden University. Swedish furniture giant Ikea is another company that has benefited, he said.
“We have to wait for the law to be drafted, but as it stands now, this means the end of tax planning,” said Van der Streek.
Mr Vijlbrief said that while any country has an effective veto, it is unlikely to use it.
“If you ask me, this is not the business climate you want to pursue,” he said. “It harms the tax climate and political morality in a country. If you want people to pay their taxes, so do big corporations. “- Bloomberg