The Netherlands misses out on € 1-2.5 billion in corporate income tax revenues each year
Tax avoidance by multinational corporations regularly hits the front pages. Many well-known multinationals make the news with complex financial structures as a result of which they do not have to pay tax on profits in some cases or not at all. But what amounts of taxes are being avoided here? That is the central question in Professor Arjan Lejour’s inaugural address at Tilburg University on February 7. Lejour has studied the extent of the tax avoidance by the business sector. His conclusion is that the Netherlands probably misses out on € 1 to 2.5 billion on corporate income tax revenue every year.
Lejour made this estimate based on his own research in collaboration with various co-authors international literature, statistical figures, and economic theory. Estimates in international publications show that companies shift profits to low-tax countries.
Apart from the fact that the Netherlands itself is deprived of tax revenue, the country is also used by international companies to divert financial flows from one country to another. For that reason, the Netherlands is sometimes labeled as a tax haven, although ‘conduit country’ more accurately describes the situation. The Netherlands is used as a conduit because the Dutch tax system has a number of unique facilities for corporate taxes. As a result, there are some 15,000 special financial institutions in the Netherlands, known as letterbox companies, which divert € 100 to 200 billion a year through the Netherlands. This allows multinationals to avoid about € 25 billion worth of taxes every year. This amount is a rough estimate that indicates an order of magnitude rather than an exact figure. These enterprises avoid taxation not only because of the Dutch tax system but also because they combine various national tax regimes, which are not geared to each other.
Although the Netherlands can take measures to limit these practices, international collaboration is desirable. National policies tend to lead to a diversion of these financial flows rather than to a reduction of tax avoidance. In addition, there is the risk that national measures could adversely affect the business climate. That risk would be reduced if measures are taken on an international level.
Dr. A.M. (Arjan) Lejour is Professor of Taxation and Public Finance at the Tilburg School of Economics and Management (TiSEM) and the Fiscal Institute Tilburg. In addition, he works as a program manager for the CPB Netherlands Bureau for Economic Policy. He specialized in international economics and later in public finance. In recent years, he has conducted much research on the national and international taxation of corporate profit. In these studies, tax avoidance plays an important role. Lejour has written dozens of academic articles and contributions to books, in addition to many policy-oriented publications. He was a member of various advisory commissions and working groups on taxes and international economics, including the Dutch Taxation of Multinationals Advisory Committee.