Lezing staatssecretaris Snel voor Université Paris-Est Creteil
Staatssecretaris Snel (Financiën) gaf op vrijdag 11 januari 2019 in Parijs aan ongeveer 70 studenten een lezing over het belang van internationale samenwerking op het gebied van belastingen. De tekst is alleen in het Engels beschikbaar.
Het gesproken woord geldt.
Ladies and gentlemen, mesdames et messieurs,
C’est un honneur que de pouvoir m’exprimer devant vous aujourd’hui. J’espère que vous me pardonnerez de poursuivre en anglais.
In my speech today I will focus on 3 aspects regarding international taxation. Tackling tax avoidance and evasion, greenlining the tax system and the digital economy. But first let me start with an introduction.
It’s a great pleasure for me to be here at this university and in a lecture theatre again. I greatly enjoyed my time as a student of international monetary economics at the University of Groningen, the most northerly city in the Netherlands. That was quite some time ago, but I look back fondly at those years. It’s a time when you learn a great deal and make friends for life. The rest of your life is still ahead of you, a blank page which you are free to fill in as you wish.
Since then, a number of paragraphs have been written on my page. The common thread running through them is finance, and especially taxation. Given the study programmes you are following, I expect you also have some interest in this subject. And that’s good, because we live in interesting times.
Let me explain.
Today I want to argue that the world is changing, and that taxation must change with it.
Because today, all over the world, we’re seeing the effects of global warming. We must join together and take responsibility for tackling this problem in a just manner.
In today’s world, the biggest and most important companies are digital, and a lot of trade is conducted online. These companies take no notice of old-fashioned national boundaries.
In today’s world, big companies are taking creative routes to avoid tax, often passing through several countries. That’s not only unethical but can also erode tax compliance for others.
These examples may seem quite unconnected. But there’s a common denominator: taxation. Another common denominator is that 1 country acting alone can achieve little in the face of these 3 developments. So we need an international response.We need to forge strong partnerships, between The Hague and Paris, in Europe, and in multilateral forums.
The most urgent example, and very much a subject that your generation will have to contend with, is climate change. The climate summit in Katowice, and the UN’s recent alarming report, have again forced us to face up to the facts. President Macron is a key figure in pushing for progress on this front. Global warming will take on disastrous proportions if we continue to emit greenhouse gases at the current rate. So we must act.
At the same time, the demonstrations by the Gilets Jaunes here in France show that we have to get everyone on board as we pursue the necessary transition. If we move too fast, we will leave people behind. So the challenge we face is far from simple.
After all, we all want a fair system and a liveable world. And that’s exactly why taxes are so important. But what is ‘fair’? By ‘fair’ I mean that the polluter pays. So we will put a price on the environmental impact of goods and services, so that consumers take more account of the costs of pollution. This will mean tax is levied fairly, and it will make a positive contribution to the environment. That’s why, for example, the government decided based on CO2 emissions to tax gas more heavily than electricity and to increase tax on waste disposal. The Dutch government has also announced a new tax on aviation.
The environment and climate change are also prime examples of international issues that transcend national borders. If 1 country is a model of eco-friendly practice, but the rest continue to pollute the atmosphere regardless, we will never save the planet. So despite our national ambitions and initiatives, I firmly believe in a joint approach such as was taken in the Paris agreement.
A good example is the introduction of a European tax on aviation. I know that France, like some other European countries, already has a tax on aviation. So we’re now introducing our own, because it’s strange to tax all vehicles and all mobility except for aircraft. By putting a price on environmental costs we hope that consumers will make cleaner choices.
But it’s by working together that we can achieve the most. That’s why I’m talking to the European Commission and various member states so that we can pool our efforts in Brussels. Each of us can reinvent the wheel, but together we know more and can do more. Together, we have the best chance of living up to the agreements we made here in Paris. And together we will do least harm to the single market, we will avoid tax uncertainty and we will maintain a level playing field.
So before next summer I’d like to organise an international ministerial conference to share experiences of national aviation taxes, to generate ideas for joint solutions, and to call on the European Commission to take action. And during my visit here I’ve asked the French government to actively take part in this conference and I am sure they will consent.
France is also an important partner for the Netherlands when it comes to my second subject, combating tax evasion and avoidance. Of course it’s in all our interests to prevent these practices as much as we can. In the Netherlands we’re convinced of this, although our image abroad may be somewhat different.
We have a saying in the Netherlands: trust comes on foot but leaves on horseback. For decades the Netherlands has had a reputation of being a fiscal friendly country, or even – according to some – a tax haven.
The latter charge was never justified. According to the OECD, a tax haven is a country that lacks transparency and shares little information. This is hardly true of the Netherlands. In normal usage the term tax haven refers to a country where companies can channel profits because very little, tax is levied there. That has never been the case in the Netherlands. The profits of companies that operate in the Netherlands are taxed. The rate of Dutch corporation tax is around the EU average. Revenue from corporation tax is therefore a significant part of the Dutch tax mix.
I’d like to point out that the Netherlands is also considered a committed participant in the OECD project, commissioned by the G20, to combat Base Erosion and Profit Shifting. And it was under the Dutch EU presidency in 2016 that the first EU directive addressing tax avoidance was drawn up. What’s more, we’re wholehearted in our implementation of international treaties and agreements, going above and beyond what is required under the rules. And France, for its part, is doing the same.
Ever since the so called ‘Golden Age’, the Netherlands has been an open economy, geared towards international trade and investments. That is why multilateral systems are vital for us. It also means that the Netherlands invests in a business climate that is attractive to international companies. Our tax system reflects the international orientation of our economy. This can be seen, for example, in arrangements to prevent double taxation. It’s important to us that Dutch companies operating abroad can compete on an equal footing with local businesses. So if profits have already been taxed in a foreign country at the prevailing rates there, we don’t want to tax them again in the Netherlands.
But there’s a flip side to this approach: companies can also use our internationally oriented tax system to erode the tax base of other countries. The risk is that because of our extensive treaty network and the absence of a withholding tax on interest and royalties, large sums could flow through letterbox firms in the Netherlands to tax havens. This is what gave us a shady fiscal reputation. And I want to put an end to this practise, as this cannot be the intention of our tax system. Everybody should pay their fair share. If companies can defer taxation or avoid it altogether, the costs of public services will be passed on to citizens and businesses that do pay their tax on time.
That is unfair.
Which is why I’ve made combatting tax evasion and avoidance one of my political priorities. The twin pillars of my approach are to protect the tax base, and foster transparency and integrity. And I know that these developments are also being followed closely in France. I recently read an interesting article in Les Echos, which talked about ‘le virage des Pays-Bas’, referring to a sharp policy turn taken by the Netherlands.
A key measure under the first pillar is the introduction of a withholding tax on interest and royalties. I commissioned SEO Amsterdam Economics, a renowned economic research institute, to analyse the flows of funds channelled via letterbox companies in the Netherlands. They found that the 15,000 letterbox companies in my country hold total assets of 4.5 trillion euros. Tax is logically not levied on this balance sheet total, but only on the balance of incoming and outgoing payments. So, according to SEO, that is the financial flow we should be looking at. In 2016 a total of 199 billion euros in dividends, interest and royalties flowed out of the Netherlands. Most of it, 177 billion euros, goes to countries with a normal tax rate, such as EU countries and the United States. But that leaves 22 billion euros that flows directly fronm the Netherlands to low-tax jurisdictions. These are countries on the draft EU blacklist in September 2018 and countries with a statutory tax rate under 9%, as the Netherlands has of this January 1st introduced its own blacklist with 21 countries with a tariff under 9%. Europe’s blacklist consists of only 5 countries and we hope other European countries will follow us in using his black list.
From the first of January of 2021, we will target the 22 billion euros that flows to low-tax jurisdictions by imposing this withholding tax on interest and royalties. This will help us prevent the Netherlands being used as a conduit or hub to tax havens and as a means to erode the tax base of other countries. This is a big and crucial step forward in the fight against tax avoidance.
But we also know that unilateral measures to tackle tax avoidance, such as the introduction of this withholding tax, have their limitations. Companies can get round this measure by setting up an entity in another country between the Netherlands and the tax haven. This is why I’m such a strong proponent of a coordinated international approach. Recent Franco-German proposals for a minimum tax, which will be fleshed out in the OECD in the months ahead, are a good conceptual match with my withholding tax. These proposals could even boost the effectiveness of my own measure. I’ll be following developments on this front in the OECD with great interest.
Let us return to the 177 billion euros that flows via the Netherlands to other EU countries or the US. One reason for this flow could be to reduce withholding taxes in another country. It’s important that this money is at least going to countries with normal tax rates. All the same, tax avoidance could be a motive to some extent. We’re tackling this with other measures. For instance by including anti-abuse provisions in tax treaties and sharing more information with other countries. One important measure in this regard is the principle purpose test. It will enable a country to deny treaty benefits to a company that channels money via the Netherlands with the sole motive of avoiding tax.
Besides introducing a withholding tax on interest and royalties to low-tax countries and the inclusion of anti-abuse provisions in tax treaties, we will of course be implementing the first and second EU Anti-Tax-Avoidance Directives, ATAD 1 and ATAD 2. As regards the first directive, we will in fact be going above and beyond what the directive requires.
Especially in how we implement the measure to combat earnings stripping. This measure limits the deductibility of interest owed by a taxpayer. The Netherlands will not provide for a group exemption from the earnings stripping rule. The threshold will be reduced from 3 million euros to one million euros. And no grandfathering rules will apply to existing loans. Applying the measure in this way will also contribute to a more equal treatment of debt and equity. This will create more stable companies and healthier economic conditions.
Moving on to the second pillar, 1 of our key measures is a stricter and more transparent approach to granting tax rulings. Tax rulings give companies advance certainty about the tax consequences of investments. And there’s nothing wrong with that per se, but in future we will look more closely at why a ruling is being requested. If the sole purpose is to save Dutch or foreign tax, and there is no added value for the Dutch economy, we will no longer provide any advance certainty. We will also publish details of international rulings in order to increase transparency.
These are some of the measures we are taking in the Netherlands.
But in the end, to make real progress we need to tackle tax avoidance at international level. If we don’t, there’s a risk we will simply shift the problem elsewhere. That’s why we’re working internationally, with France as a key ally, for a world where everyone, from individual citizens to multinationals, pays their fair share of tax, and where we can all profit from the services paid for by taxation. The final topic I’d like to discuss is the digital economy. When I was a student, nobody had a mobile phone. You probably find that hard to imagine. Today, with our smartphones, we all have the world in our pockets. Thanks to Google Maps, Dutch tourists no longer get lost in Paris. We buy most of our Christmas presents online. And I expect none of you would think of going to a physical travel agency to book a holiday.
Most of our taxes were designed for a world that no longer exists. Corporation tax was devised 100 years ago, when phoning someone was a complex undertaking, involving a mouthpiece mounted on a stand, a separate ear-phone and various connecting cables. I won’t go into the details of early telephone technology, but suffice to say we’ve come a long way. We have a new economy, and that means we need new rules. Especially given the great strides made in the digital domain over the last decade. Companies like Netflix, Spotify, Amazon or Google have become part of our lives.
The current international rules on profit allocation stem from the bricks-and-mortar era of the 20th century, when value could easily be attributed to real physical tasks. But in these new business models, value can be created in markets with no physical presence. So the question arises: where exactly is their value created? And who should tax it? It’s clear that our current rules need to be revised.
So it’s good that we’re working hard within the OECD to find long-term global solutions to these issues. To build a system that will meet our needs for some time to come. And it’s good that we’re working at EU level on a short-term solution, too. I welcome France’s active input on this point. I understand that France has announced it will introduce its own planned digital services tax in 2019. We appreciate the considerations that motivated this decision. At the same time, we believe it’s important to continue acting in concert in the EU. Because a scenario where everyone draws up their own rules would be bad for the single market and bad for Europe’s citizens.
Ladies and gentlemen,
The British philosopher Bertrand Russell once said, 'The only thing that will redeem mankind is cooperation'. It’s a pity that the British themselves seem to have somewhat lost sight of this truth. But the bottom line is that, if we are to make progress, we have to work together. International cooperation is the only way to stop tax avoidance, it’s the only way to combat climate change, and it’s the only way to bring our tax system into sync with the digital age. Together with France and many other partners, we are now making major strides in these areas. And soon it will be up to your generation to help the world advance on all these fronts. I have every confidence we will succeed.
Thank you so much for your attention.