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The Netherlands Will Review Double Tax Treaties With Poor Countries On Fairness

PUBLICATIONS / Newsletters / 2013 / Newsletter August

The Netherlands Will Review Double Tax Treaties With Poor Countries On Fairness

Last week, the government of The Netherlands has approved a proposal that a number of measures will be taken to tackle the status of The Netherlands as tax haven.
They will review a number of existing tax treaties with development countries.
The discussion with regards to the tax treaties totally fits in with the current public outcry for more regulation for internationally structured multinationals. We have some objections.
NGO reports
The latest addition to the arguments against tax planning multinational comes from the side of NGO’s like Oxfam Novib, SEO and SOME, who discuss the unfairness of tax evasion and the result it has on development countries.
These reports take the example of investments that are done via The Netherlands, after which the profit is being extracted to an offshore jurisdiction, leaving the local tax authorities empty handed.
What should be done about these developments?
Firstly, lets look at the pretext.
What characterizes the current discussion is the emotion and subjectivity of it. The basis of the Western judicial system is that there are laws and regulations that provides the framework for society. What we now see is that companies experience backlashes while following the law because someone disagrees on emotional arguments. A good example is the case of Starbucks in the UK that we discussed Here.
When reading the NGO’s reports (but also articles from the OECD) one notices that a certain pretext is being created. Often, tax avoidance and tax evasion are mentioned in the same sentence. And in such a way that it appears they are part of the same crime: stealing money from the government, or better, the public. Statements are made that while something is legal, it is morally unjust. It is a very slippery slope if this type of rhetoric starts to dictate public policy.
In this case, the eventual policy was based on a research that was performed on behalf of the Dutch Ministry of Foreign Affairs. It nuances the financial estimates of the alleged damage that the NGO’s projected, but does follow the pretext. The result is that 23 tax treaties with development countries are going to be reviewed.
What is interesting is that the lack of tax revenue is considered the most important variable. But Western nations don’t force development countries to sign tax treaties at gunpoint. Developing countries sign these agreements with the hope it will increase Foreign Direct Investment’s (FDIs) that stimulate their economy. The eventual reduced tax benefit is not their concern. Otherwise they probably would not sign it into existence. And eventually opt out of it.
The Unfair Advantage
Another argument that often is being used is that multinationals have an unfair advantage over their local competition. Because their reduced tax burden allows them to offer the same goods at lower prices.
They of course have an advantage, but we would like to also provide two different perspectives. Ikea, Amazon and Starbucks offer their products to a lot of happy consumers. Increasing the tax rates would make us all pay much more for their products.
And why don’t we look at the possibility of simply reducing the tax and regulating burden for local companies as a way of making things fairer? These are major hurdles that highly impact startups and the smallest of companies. But this option is completely ignored.
While there is nothing wrong with a public debate on these important issue, we must make sure that policy making does not become a victim of populism. And we must be very careful that our efforts to control and tax everything on the pretext of making things fair not has the negative impacts on the companies (both big and small) and the consumers that actually drive the economy.

Fast Welcome to the Czech Republic. Great New Visa Procedure

As a landlocked country with a small economy but great geographical positioning, the Czech Republic continuously attempts to attract foreign investors. In order to speed up the process of the internal employees transfer of foreign company’s branch located in the Czech Republic, the accelerated visa procedure named “Welcome Package” has been developed earlier this year and entered in force last month.
The legal frame for entry and residence of foreigners in the Czech Republic is anchored in Act No. 326/1999 (the “Aliens Act” ). As a EU and Schengen area member, the Czech Republic honors and accepts the EU regulations regarding the cross border movement of persons.
Focusing on faster transfer of highly skilled and managerial staff (specialists and managers) from third countries who are temporarily posted to the Czech branch, subject to conditions, the work permits and long-term visa for 6 months can be no obtained within 10 resp. 30 days.
In order to qualify for the fast track procedure, the said newly established Czech branch of an  international company has either submitted an application for investment incentives or fulfils these criteria:
1) Minimum number of employees: For IT companies, the plan is to employ 20 employees in the coming 3 years; for manufacturing and business support companies, the plan is to employ 50 employees in the coming 3 years.
2) Purchase of land or a contract on leasing of non-residential premises.
1. The company notifies the relevant regional branch of the Labour Office (LO) regarding vacant positions and negotiates with such branch a plan to hire a given number of foreign specialists/managers and submits an application for issuance of work permits.
2. The company subsequently announces its intention to participate in the Welcome Package project to the Ministry of Industry and Trade (MIT), completes an application for inclusion of the company in the Welcome Package project and submits all mandatory appendices of the application.
3. The MIT evaluates the application and forwards the outcome to the company in writing.
4. In case of positive outcome (= the company may participate in the project), a statutory body, manager or key specialist of the given company shall submit a visa application to an embassy (and ensure in advance, at his/her own expense, the express application dispatch service). The embassy will send the visa application to the Ministry of Interior (MoI).
5. The LO will rule on the issuance of a work permit. Subsequently, the LO will send its ruling to the MoI for assessment.
6. The MoI will assess the submitted long-term visa application and, in the case of fulfillment of the statutory conditions, issue a long-term visa.
7. Based on the instruction of the MoI, the embassy will inform the foreigner and imprint a long-term visa in the foreigner’s travel document.

The Smaller The Better

To those who believe decentralized government is preferable over centralised decision making it should come as no surprise it is the small countries in Europe, none of which are part of the EU, that offer the highest standards of living.
According to the OECD standards, the European microstates Liechtenstein, Monaco, San Marino and Andorra are considered tax havens. All these countries have indeed low taxes, and also a very high GDP per capita (all fit in top 15 in the world)
Andorra (84,000 inhabitants)
Out of the four countries, Andorra has the largest population. Mostly Spanish, French and Portuguese live here. Andorra’s landscape is rather mountainous and it is a popular skiing center. The currency is the euro. With regards to taxation, the main features are:
• Andorra does not levy any direct personal income taxes (income or wealth). Unfortunately it is set to introduce a personal income tax of 10% in 2016.
• No inheritance tax nor capital tax.
• Government expenditures are financed from indirect taxes, which are levied on the production, processing goods and import of all products.
• Other sources of national budget are the electricity tax and telephone charges.
• The employees pay only 5% of their wages for the social insurance, the employer pays 13%.
• Since 2012 Andorra has a corporation tax of 10%.
Liechtenstein (35,000 inhabitants)
Since 1924, Liechtenstein has been connected with Switzerland by the monetary and customs union and is a member of the United Nations and the European Free Trade Association (EFTA). Lots of Swiss, Austrians and Germans live here. The national economy of Liechtenstein is built around a strong banking sector. The bank secrecy and anonymity offered by local banks in combination with low tax resulted in approximately 74,000 registered companies. Basic tax rates are:
• Corporate tax is paid only on profit ranging from 7.5% to 20%.
• Income tax is between 3.24% and 17.10%.
• VAT has three tax rates (baseline 7.6%, decreased 3.6% and 2.4% super reduced).
• Wealth tax ranges from 0.06 to 0.89%.

Monaco (33,000 inhabitants)
With area covering merely 2 km2, Monaco is the second smallest country in the world after the Vatican. The unrealistic number of inhabitants causes the largest population density in the world. The state of Monaco is basically only one city, which consists of a narrow rocky peninsula and the coastal strip. Monaco is a member of the United Nations and has an office in Brussels. The currency is the euro. Domestic policy is closely linked to France, which ruled Monaco in the past. Basically, there are no taxes in Monaco but fees that apply are as follows:
• No income tax or capital gains tax or wealth tax but:
• tenants must pay 1% of the rent. Due to lack of real estate, purchasing is almost impossible so the most wealthy residents live in rented properties. The rental price is very high, so even at a low rate of tax this represents a significant source of financing for the state budget. One can say that Monaco is financially dependent on property ownership.

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