Multinationals often do everything they can to dodge taxes. Every year, developing countries miss out on billions of tax revenue because of, among other things, the beneficial tax routes that flow to the Netherlands. The UN is now investigating what impact fiscal systems have on human rights, in particular the human rights of people in poor countries. In times of crisis and retrenchment, the call for action against tax avoidance is becoming louder and louder. What is the latest news? And what is there to be expected?
On 21 January the Dutch Senate (Eerste Kamer) held a debate on the role played by the Netherlands in international tax avoidance practices. Various parties were critical, with good cause, about the government’s approach. The Socialist Party (SP) is not convinced that the Netherlands wants to be part of the solution instead of the problem. The government is not trying hard enough to tackle these problems, in their view. The Labour Party (PvdA) quite rightly asked if the State Secretary shouldn’t intensify the requirements mailbox companies have to live up to: they fear that the measures planned so far to ensure that these companies develop actual economic activity in the Netherlands will turn out to be just an empty formality.
Unfair effects of tax treaties
The Green Party (GroenLinks) mostly drew attention to the unfair effects of tax treaties, a subject that SOMO did a lot of research on in 2013. They indicated that it is essential to quantify the impact of tax treaties. Despite the fact that tax treaties are entered into on a voluntary basis, the Netherlands still has “a responsibility in the matter of the other country making its decision with adequate information and awareness of the issues – after all mutuality does not automatically bring equality,” said Senator Margreet de Boer during the debate.
The motion proposed by GroenLinks, requesting the government to propose how, when formulating tax treaties, to better protect the interests of the people in developing countries and the human rights standards, and to inform the Senate of such, was sustained.
SOMO finds it a matter of great importance that stakeholders with their diverging interests are all heard during the negotiation process of a treaty through a formal and transparent consultation process. It is important that the stakeholders in the country of the treaty partner are also involved.
The impact on developing countries
For developing countries in particular, an increase in tax revenue can make a big difference to the available government budget. So it is important that tax treaties do not damage the tax base. Governments need tax revenue to be able to safeguard certain human rights, such as the right to education and healthcare. At an international level also, the impact of fiscal systems on human rights is being seen as a problem and investigated. The United Nations is currently writing a report on this topic that will be presented by Magdalena Sepúlveda Carmona, the UN Special Rapporteur for extreme poverty and human rights, in June of this year. On the basis of its research and expertise, SOMO has been providing input during the consultation round organised by the UN. SOMO stressed that the Dutch government has a responsibility with regards to the impact of its tax policies on other countries. Stricter regulations, improved monitoring and more transparency are therefore crucial.
All things considered, the debate surrounding tax avoidance is in full swing. The European Commission has made a proposal for all member states to ratify the same general anti-abuse measure in their national legislation. The Dutch government has not agreed with this proposal. It says this would diminish the Dutch approach to tax avoidance. At the same time the official viewpoint held by the government is that the problem of tax avoidance does require an international solution. So the government seems to be in contradiction with itself. In other news, the OECD is working on its action plan to counter ‘Base Erosion and Profit Shifting’. Within this project, the members of the OECD are formulating joint measures that can be taken against international tax avoidance conduct. In September the first detailed plans and compromises will be presented.
What’s more, by that time the results of the research on the effects of the Dutch government’s tax policies by the Court of Audits (Algemene Rekenkamer) are expected. Follow @SOMO or our researchers @mvanderstichele, @IndraRomgens, @RensvanTilburg and @fernandezamster to stay tuned for more tax news!