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Tax chiefs pleased that Netherlands will publish tax rulings

19 December 2018

Joe Stanley-Smith

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Heads of tax at multinational companies have welcomed the Dutch government’s announcement that it will publish anonymised summaries of all its tax rulings from July 2019.

The measures are designed to allow public scrutiny of rulings and prevent the use of shell companies, and is part of a broader drive by the Netherlands to prevent itself being seen, and used, as a pipeline to tax havens.

"We are not afraid for tax rulings [to be] made public," said the head of tax at an investment group. "This will create a bit more understanding in an environment that demands more transparency."

"The government ensures that our private data will not be open for other competitors. We have no problems with that," he continued. "In fact, it could help us, [in that] we can learn from public rulings. This could improve our tax position."

While the Netherlands is opening up its tax rulings to the public, it’s worth noting that its policies for granting them will not change as a direct result of this – though the European nation has tightened up its rules in this regard during 2018.

"The most important thing is that the DTA will keep providing certainty to its taxpayers," added the source.

A spokeswoman at the Dutch Ministry of Finance confirmed: "The Tax and Customs Administration will publish an anonymised summary of each international ruling it issues directly, and will also publish an annual report."

Why make the change

There are multiple factors which have pressured the Dutch government into being stricter with its tax rulings, and now electing to make them public.

"Many people associate the issuing of rulings with shady practices. But a ruling gives companies nothing more or less than prior clarity about the method of taxation based on the law," said Secretary of State Menno Snel. "We plan to make substantial changes to the law in the years to come in order to prevent the Netherlands from being used as a conduit to tax havens. We are also tightening up the rules for issuing rulings, and making this transparent for all concerned."

The country fell foul of a high-profile state aid investigation into the tax ruling it had in place with Starbucks, at which time the European Commission also ruled against an arrangement Luxembourg had with Fiat.

While both countries are appealing, the negative publicity associated with tax rulings that drastically reduce tax bills has been enough to put many companies off. Rulings concluded today rarely result in a significant tax saving.

"It is a situation you don’t want to be in," said an international tax director whose company has been involved in a state aid investigation. "The taxpayer is not even informed or consulted. The taxpayer may not even know. The process is between the Commission and the country."

The main point of most tax rulings, as Snel asserts, is to provide certainty for tax authority and taxpayer, and risking falling foul of the EC means there’s no certainty at all. Consequently, aggressive tax rulings are not as appealing.

Furthermore, since the implementation of EU Directive 2015/2376 (DAC 3) on January 1 2017, tax authorities have already been exchanging information between themselves on rulings and advance pricing agreements (APAs). Some countries did this earlier, due to BEPS Action 5.

"The Netherlands was already fully transparent with exchanging information with other European tax authorities," said the spokeswoman. "With this we’re taking a step further by making an anonymised summary of each international ruling public. By our knowledge this practice is already being done in Belgium as well. The government supports the European Commission’s proposals for greater transparency."

Commercial considerations

Therefore, this step by the Netherlands is not revealing new information to tax authorities who might use it against them in audits. The only parties of note gaining access to the information are the public, and other companies.

It stands to reason that public reporting of tax rulings does not put companies off using them. Instead it’s state aid pressure and EU rules that have changed the way companies use tax rulings.

In the two years following the Luxleaks scandal, where the tax arrangements including tax rulings of many multinational companies were laid bare, the number of tax rulings increased by 160%, according to figures by the European Network on Debt and Development (Eurodad).

That leaves, then, the thorny issue of commercial considerations – often cited in discussion drafts as a reason not to introduce further transparency measures.

But the head of tax at a chemical company which occasionally uses rulings and APAs, said: "I never thought that competitiveness of companies had to apply in tax. Cash saving, whatever its source, gives more tools to enterprises. I have always shared tax practices with my peers."

The head of tax at the investment group added: "The most important parameters are not visible." He added that the stricter rules mentioned by Snel have already been implemented, and are "against shell companies whom are used to avoiding taxation – we are not driven by that".

The positive reaction from companies shows that transparency measures are not always something to be feared, and can in fact dispel public misconceptions about the way multinationals pay tax and pay a reputational dividend.

International Correspondents