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You are here: Home Finance & Business Tax US targets "tax haven" Netherlands
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11/05/2009US targets "tax haven" Netherlands

US targets "tax haven" Netherlands US taxes disappear in Dutch-Irish-Bermuda triangle.

The Netherlands is a corporate tax haven for US multinationals and, together with Ireland and Bermuda, it is sheltering companies' earnings from the American tax authorities, a US Treasury Statement suggested on Monday. As long as they keep their earnings overseas, US companies are legally exempt from paying. Taxes only become due when the money is "repatriated" to the United States.

The current practice is perfectly legal, but the US government considers it harmful to the American economy. President Obama announced a crackdown on the tax shelters, aiming to raise USD 210 billion in taxes over the next decade. A Wall Street Journal report in April quoted a figure of USD 58 billion in overseas earnings which are out of the tax office's reach, losing it an estimated USD 20 billion in tax revenue. One third of the foreign profits in 2003 came from what the US Treasury calls, "three small, low-tax countries: Bermuda, the Netherlands, and Ireland."

On Wednesday, the White House retracted its statement that the Netherlands is a corporate tax haven. The retraction came in the wake of an angry denial by Dutch Finance Minister Wouter Bos, who says the accusation is "completely unjust". Mr Bos also said that the Netherlands is not planning to change its tax system.

A spokesperson for Deputy Finance Minister Jan Kees de Jager says the White House informed the Dutch embassy in Washington that the Netherlands would be deleted from the list. "The deputy minister is glad that the misunderstanding has been cleared up."

Barack Obama
The Netherlands: a corporate tax haven?


US companies pay a 35 percent corporate tax, which can be reduced by various allowances, yielding an average of 22 percent. Taxes levied abroad are much lower, with Ireland's corporate tax at 12.5 percent. The Dutch rate is 25.5 percent. Only earnings made abroad by Dutch branches of multinationals which are based on their proprietary rights are not taxed under the Dutch system.

Hiding becomes illegal

Mr Obama's proposal for "getting tough on overseas tax havens" requires US businesses to report their overseas corporations on their US tax returns, making it illegal to hide them from the Inland Revenue Service. In addition, the plan aims to create fiscal incentives to create jobs in the US rather than abroad. If the plan, for which the administration is seeking bipartisan support, is passed by Congress, the IRS will hire nearly 800 new staff to enforce the rules.

Major multinationals like Pfizer, Oracle, Microsoft, Johnson & Johnson and General Electric are opposing the proposal, saying that it is giving an unfair advantage to companies whose head office is outside the US.

The Netherlands may not quite be a tax haven, but there are some perks for international companies based here. Especially when it comes to 'intellectual property': patents, copyrights on music and films, artistic rights and so on. Individuals or companies that own these rights get paid on a royalty basis, i.e., every time their patent or copyright is used -- wherever in the world -- they receive an amount of money.

AFP PHOTO / DOMINIQUE FAGET

These payments can amount to millions of euros or dollars for major patents owned by companies like Unilever or Shell. In most countries, these payments are taxed, but in The Netherlands, they are not. The reason for this is that the Dutch government says that there should be free movement of goods and trade between various countries and taxing this money could hamper that principle, says the Dutch Finance Ministry.

Not only do major international companies profit from this, there are also several high profile artists who are officially based in The Netherlands for this reason. The Rolling Stones and U2 are two examples. Every time a U2 song is played on American radio, a copyright royalty is paid to U2's Dutch office -- tax free.

And does the Dutch economy profit from this? Only marginally. Companies have to set up a local branch in The Netherlands (not just a 'post box address'), which generates employment and a little bit of income tax. But it's the owners of copyrights and patents -- whether they're Unilever or Bono -- that make the most out of it.


Radio Netherlands / Rob Kievit / Expatica



4 reactions to this article

twopenneth posted: 2009-05-11 14:11:36

I think the exemption of royalties, patents, etc, is a bit unfair when we are talking about big artists like U2 and big companies like Unilever. But if you will look at the smaller one, new artists and small companies that is also covered in this law, its advantageous to them. The Dutch government should set a ceiling for these tax exemption so if it will be a fair law.

TwoPenneth
http://kopenandkoken.blogspot.com

glambrat posted: 2009-05-13 11:14:50

It disgusts me Bono going round the world telling governments they should give more of their tax money to poor countries in Africa when he pays zilch tax himself.

Al posted: 2009-09-30 01:47:36

Obama would have some weird world government agency (likely controlled by the USA basically) mandate, control, and audit all financial transactions. Why is Obama, like Bush before him, feel the need to dictate to sovereign countries how they must tax and abuse their citizens or companies? Just because the USA wants a "big brother" total tax regime doesn't mean that actual democratic countries might not wish a more fair or other tax policy? Why must every country on earth, even Switzerland and Nederland, bow before Obama and the USA?

Tom posted: 2009-12-15 07:57:59

Al, Taxes are FAR higher in Europe than what we pay here in the U.S. [Edited by moderator]

4 reactions to this article

twopenneth posted: 2009-05-11 14:11:36

I think the exemption of royalties, patents, etc, is a bit unfair when we are talking about big artists like U2 and big companies like Unilever. But if you will look at the smaller one, new artists and small companies that is also covered in this law, its advantageous to them. The Dutch government should set a ceiling for these tax exemption so if it will be a fair law.

TwoPenneth
http://kopenandkoken.blogspot.com

glambrat posted: 2009-05-13 11:14:50

It disgusts me Bono going round the world telling governments they should give more of their tax money to poor countries in Africa when he pays zilch tax himself.

Al posted: 2009-09-30 01:47:36

Obama would have some weird world government agency (likely controlled by the USA basically) mandate, control, and audit all financial transactions. Why is Obama, like Bush before him, feel the need to dictate to sovereign countries how they must tax and abuse their citizens or companies? Just because the USA wants a "big brother" total tax regime doesn't mean that actual democratic countries might not wish a more fair or other tax policy? Why must every country on earth, even Switzerland and Nederland, bow before Obama and the USA?

Tom posted: 2009-12-15 07:57:59

Al, Taxes are FAR higher in Europe than what we pay here in the U.S. [Edited by moderator]

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