Taxation, the new frontier in EU policymaking: a Dutch perspective
Toespraak van staatssecretaris Van Rij (Fiscaliteit en Belastingdienst) bij het Center for European Policy Studies (CEPS) in Brusssel. Deze toespraak is alleen beschikbaar in het Engels.
Het gesproken woord geldt.
Ladies and gentleman, good afternoon,
To avert the risk of a new economic financial crisis like that of the 1930s, comprehensive cooperation between the countries and regions of Europe is essential. This was also the firm conviction of Johan Willem Beyen, a Dutch banker who later became Minister of Foreign Affairs. He was a non partisan politician.
And when the plan stranded for a political union and a Defense union in 1954, the 6 founding member states of later the European Economic Community where sitting together. And it was mister Beyen who has written a memo, he discussed it with his colleagues, the ministers of foreign affairs from Belgian and Luxembourg, Paul-Henri Spaak and Joseph Bech. They converted it to a plan, which finally led to the birth of the European Economic Community in 1957.
I mention this story, because always on moments of crisis, there is a way out. Through policy or through the jurisprudence.
First you have to have a vision and a common ground. The importance of European and international cooperation to the Netherlands is beyond doubt. It is exceedingly important. It was in Beyen’s era, it will be in the future, and it certainly is now.
Today’s problems transcend the borders of nation states more than ever before. The integration of national economies is far-reaching. Goods and capital are flowing across borders more, and more quickly. Work is becoming less bound to a particular location, as we observed and are observing in the COVID pandemic. Climate and environmental problems demand international action.
And it is here that the tax system can and should play an important role. Because tax incentives influence the choices made by people and businesses. So taxation has become an increasingly important tool in our joint policymaking in the European Union. To give just one example: environmental taxation, a tax to help fight climate change.
When I studied tax law, this dimension of taxation was never discussed. It was all focussed on VAT, income taxes, etc. This has changed significantly. I would definitely advice a young student to specialise in environmental taxes.
Brief historical survey of progress in European integration
The Netherlands was 1 of the founders of what is now the European Union.And that goal, in light of the current events in Ukraine, is once more bringing us even closer together in the European Union. A war can cause paradigm shift on how a better world should look like.
The EU has gradually evolved to become what it is today. It was built on solid foundations. But of course those foundations need constant maintenance. I have high hopes for the plans the Commission will present in the autumn.
The package on VAT in the digital age is very important to optimise VAT revenue. In the Netherlands we are relatively good at this, but not good enough. We still miss out on 2.7 billion euros in VAT income each year. Across the EU as a whole we lose 134 billion euros in revenue. Could you imagine if we would collect 25% or 35% of this.
This is about today’s Union. It made sense at the start of the European project to agree first on the taxation of goods that could be traded freely in the internal market, so agreements on VAT and excise duties.
That was of course a necessary step to enable the internal market to function properly. Given the increasing mobility of capital, agreements are also needed on other taxes.
Such as those laid down in the Anti Tax Avoidance Directives known as ATAD 1 and 2. Legislation that we have made together in the European Union in order to prevent tax avoidance. Or the directive that we are now trying to conclude in Europe on the agreement of the Inclusive Framework on a global minimum level of taxation for multinational groups. The effective tax rate must be 15 per cent across the whole of Europe. Hopefully a decision can be reached on this after the summer. Preferably with all member states on board.
Together we are building a stronger European Union via legislation and political decisions. The European Court of Justice also plays an essential role in this regard. As it did in 1986 when it handed down its judgment in the Avoir Fiscal case. It established that resident and non-resident companies must be treated the same with regard to direct taxes in the European Union.
This judgment was the first of its kind and therefore had important implications for tax law and cooperation within the Union.
Since then our national economies – of which we now have 27 in the EU – have become steadily more integrated. This allows for more and better European cooperation on international tax matters. Certainly with regard to corporate income tax, and to carbon pricing and carbon taxation. If, for example, a German factory near the border causes pollution, we might suffer the consequences across the whole of the Netherlands. CO2 doesn’t stop at the border. So of course the reverse is also true. Germany can be adversely affected by pollution from Dutch industry.
Europe’s importance to the Netherlands and vice versa
Europe is very important to the Netherlands. According to the Netherlands Bureau for Economic Policy Analysis, the trading advantages of EU membership have added 3.1 per cent to Dutch GDP on a structural basis. And that’s a conservative estimate. So the Netherlands is one of the countries that have benefited the most from the increased trade and investment.
This increase makes effective common legislation even more important. Legislation to ensure trade and investment is well regulated. For our economies and for our citizens.
It’s important that we continue to make good laws, and it is just as important that they are workable in practice. And here I have a concern, a serious concern.
So we need to constantly monitor whether the rules we agree are indeed workable. For our businesses and citizens, and for the organisations that enforce the rules.
This can prove to be a challenge. Because society is becoming more complex and more demanding, tax legislation is likewise becoming more elaborate. Digital technology can play a major role here. But in the Netherlands we also see that it cannot always keep up with the pace of developments. Computers were first used by the Dutch tax authorities in the late 1960s. In the decades that followed, automation really took off.
At a certain point the tax authorities experienced first-mover disadvantage. That’s why it makes sense to keep the workability of legislation constantly in mind. Let us plan moments of reflection to see whether we are meeting our objectives effectively and at what speed we can best do that. Always ask: is it effective? Is it workable? When you’ve answered these questions you can evaluate and monitor the measures you have introduced.
Cooperation goes beyond Europe
Making good deals on tax is important in the European Union, but they don’t stop there. Agreements have to be made on a far wider scale too. Since the global financial crisis, the G20 has been at the forefront of efforts to tackle tax avoidance and evasion. While in 2016 the inaugural meeting of the OECD/G20 Inclusive Framework was held.
The agreement we reached last year, five years after that first meeting in Kyoto, was truly historic. No fewer than 137 countries agreed changes to the international tax system. A system that had changed little in over a century. The compromise that these 137 nations worked out will fundamentally change the tax landscape. The Netherlands for its part is a strong advocate for these changes. Companies must pay tax where they earn money.
The group of 137 countries is very diverse and includes developing countries. The Netherlands is committed to ensuring their voices are heard at the negotiating table. And we support their implementation of legislation by means of technical assistance and capacity building.
The position of developing countries is also an important consideration when we devise our own tax policies. We take a progressive approach to granting taxing rights, especially in order to boost domestic resource mobilisation where that’s necessary. And the Netherlands has revised its treaty policy. So there are more situations where developing countries can tax the income of Dutch companies operating in those countries.
Combating tax avoidance and the abuse of tax rules
In the Netherlands and the rest of Europe we try to create an attractive climate for investment and doing business. An economically powerful European Union occupies an important position in relation to China, India and the United States.
Solid foundations for work and knowledge are vital in the EU too. A strong basis also provides a breeding ground for new activities. And we need new businesses for climate adaptation and the digital transition.
The Netherlands had something of a reputation when it came to taxation and tax avoidance. And it’s true that our internationally oriented tax system gave many companies scope to avoid paying tax.
But we changed course entirely a few years ago. The Netherlands takes a hard line on tax avoidance. We not only implement the European rules – like ATAD 1 and 2 – in the strictest way possible, but we also took all manner of extra national measures.
This has sharply reduced the flow of money from the Netherlands to countries with low tax rates. Provisional figures indicate that the total flow of income to these countries has fallen by almost 85 per cent from 38.5 billion euros in 2019 to just under €6 billion euros in 2021. And our measures have put an end to tax avoidance schemes like the Double Irish with a Dutch Sandwich.
We will tackle much of the remaining 15 per cent with a withholding tax on dividends from 2024 onwards. I am proud of this result.
And it’s one that is widely recognised. The European Commission, the OECD and the IMF have all taken note of this policy change and the measures taken by the Netherlands.
I will continue this effort, because there remains work to be done.
For instance, there are still too many shell entities in the Netherlands which add nothing to our economy. Shell entities that are all too frequently used to avoid paying tax.
A joint approach is the best way to tackle shell entities. So I call on my European counterparts to address this issue together. Because payments can just as easily be channelled through other countries. That’s why the European Commission’s proposal to end the misuse of shell entities is so important. There can be legitimate reasons for a shell entity, but by sharing information among EU member states we can ensure tax is levied as if the shell entity did not exist.
This proposal is an essential part of international efforts to fight tax avoidance and it has my wholehearted support.
As I said earlier, the EU is shaped by legislation, political decisions and the judgments of the European Court. Governments have an important role to play in this sphere, but so do businesses. We can devise the best legislation, but businesses themselves also have a responsibility to shoulder. In the Netherlands they took the initiative to draw up a Tax Governance Code, which shows they recognise their responsibility to society and acknowledge that paying tax serves a social purpose. Under the Code, large companies agree to be open with society at large about how much tax they pay, and commit not to put structures in place that are designed to avoid taxation.
Tackling climate change
Tax avoidance transcends national borders. So measures to tackle tax avoidance must do the same. This applies equally to tackling climate change.
We can do a lot for the climate through taxation. I’m pleased to see that the EU also has high ambitions in this area. Europe should want to lead the way. And within Europe, the Netherlands wants to set a good example.
It was already clear that we have to end our dependence on fossil fuels. The Netherlands has therefore signed the COP 26 agreement last year.
The war in Ukraine has underlined that. In the Netherlands we are looking at ways to stop giving financial incentives for the use of fossil fuels. We can’t do this alone. We have to collaborate with other countries.
These aims are set out in our coalition agreement, and in the EU’s climate policy, as detailed in the ‘Fit for 55’ package.
These are admirable ambitions for the longer term. But the war in Ukraine is also compelling us to make agreements that are at odds with those ambitions for the short term. Like opening coal-fired power stations. Or, and this is more my field, temporarily lowering energy taxes, within the overarching EU frameworks.
In the immediate future we have to do all we can to try to avoid vulnerable households being hit hardest by rising energy bills. At the same time, the higher prices underscore the importance of the energy transition.