EFR Business Club

Toespraak | 09-04-2008

Tax climate: openness and transparency

Ladies and gentlemen,

[Introduction]

1. I would like to thank you for inviting me here today. I am delighted to be able to address you as an alumnus at my alma mater. I graduated almost 12 years ago. Breaking Barriers is both the theme of this Business Week and my motivation for going into politics. The topic today on this opening day is Netherlands for Sale. But I will be talking to you about the investment climate, to illustrate that we are buying and not selling. I have to remind you that Dutch companies like Philips, TNT, Aegon, Heineken and Aalberts are constantly taking over foreign companies.

2. In both selling and buying taxation is a critical factor. Taxation is the most important part of my portfolio; in fact I have sole responsibility for taxation within the Cabinet.

3. Before becoming State Secretary of Finance I was an entrepreneur. So I am familiar with the world of business. Any discussion about business and taxes soon turns to the tax climate and that is the subject I want to address this afternoon.

4. The Netherlands has several favourable features that contribute to its positive investment climate. It is the gateway to Europe, with a world port and a world airport. Its physical and technological infrastructure is highly developed. It enjoys economic, political and social stability. It has an international outlook. And our population is highly educated and speaks many languages. All in all, it is an attractive country to live in.

5. These advantages did not appear out of nowhere. Many of the qualities that the Netherlands possesses depend on our public services. And public services cost money to develop and maintain. So taxes are unavoidable.

6. A commonly heard complaint, however, is that taxes are a hindrance to business. It is true that paying taxes is not much fun. And that the Netherlands does not have the lowest taxes. But Dutch people agree that taxes are necessary to maintain public services. And this is true not only in the Netherlands, but also in the rest of the world, however much individual tax systems may vary.

7. Since all countries have to levy taxes, taxation can be used to stimulate business. This requires creating a competitive tax system, and we are actively pursuing this goal.

[Overview of business climate]

8. There is no denying that the Netherlands has a favourable tax climate. Let me run through its four key advantages for business.

Advantage number 1:
9. We have attractive tax rates. The rates have gradually been reduced over the years. In 1983 the top corporation tax rate was 48 per cent. This has steadily been cut to 25.5 per cent today.

10. This process is still in progress. In the 2008 tax plan, I raised the ceiling for reduced corporation tax rates to two hundred thousand euros. We have also reduced the rate for the second tax bracket. Our corporation tax rates have therefore become increasingly favourable.

Advantage number 2:
11. The shareholder’s exemption on a substantial holding, also known as the ‘ participation exemption’, is one of the cornerstones of corporation tax. This exemption for shareholdings in domestic and foreign companies is designed to avoid double taxation when a subsidiary distributes its profits to its parent company.

12. This means that corporation tax is only levied once on a group’s profits. This has proved to be a great advantage for international companies establishing their head office in the Netherlands.

Advantage number 3:
13. The Netherlands has one of the most extensive and favourable networks of tax treaties with other countries. Why do we conclude these treaties? Because we have a very open economy, with a small domestic market and a large foreign market.

14. This means that a large proportion of companies mainly operate internationally. It is crucial for them to have as much certainty as possible regarding the tax consequences of their economic activities abroad. It is also important to eliminate obstacles to international trade.

15. Only one country levies income tax or corporation tax and the other grants tax relief. This creates clarity and avoids double taxation.

16. The Netherlands signs tax treaties to improve the investment climate for businesses whose economic activities extend beyond our borders.

17. An optimum business climate leads to greater business activity by foreign companies in the Netherlands and by Dutch companies abroad. Dutch companies have to compete with other companies in all the countries in which they operate. We believe it is very important for this competition to take place according to the rules of that country. These rules – including tax rules – must be the same for everyone. In other words, there must be a level playing field. Our tax treaties provide this level playing field.

Advantage number 4:
18. The Netherlands has made transparency and cooperation its watchwords. This can be seen in the way the Tax and Customs Administration operates. It is making strenuous efforts to improve its procedures. Well-oiled processes are of course a quite legitimate form of tax competition.

19. To provide certainty in advance, the Dutch Tax Authorities enter into agreements with companies in advance. This is something special for foreign investors. The quality of our agreements and the legal certainty which these provide, are among the best in the world.

20. The Tax Administration is altering its approach to supervision. We are steadily moving towards a situation of great equality, with greater emphasis on mutual trust between taxpayers and the tax authorities.

21. By making agreements with the Tax Administration, companies can obtain prior certainty. Most of them are, after all, honest and want legal certainty, through voluntary agreements in advance. Agreements are set down in writing and then complied with. As equal partners.

22. And say that we will then make no further inspection visits.

[Intomart/GfK survey]

23. A recent survey among American companies based in the Netherlands shows that the Dutch tax climate is well appreciated. When choosing a foreign country as a business location, most companies regard tax rates as the decisive factor, followed by the participation exemption. Most companies consider our tax rates to be competitive.

[But ...]

24. What I have said so far, sounds like a success story. You can summarise it in two words: openness and transparency. Openness is a vital ingredient in a globalising world. So we are keeping our fingers on the pulse.

25. But our openness is sometimes a pitfall.

26. Takeovers by Dutch companies abroad, as well as takeovers of Dutch companies by foreign companies, give rise to unwanted possibilities to sharply reduce the burden of taxation.

Ladies and gentlemen,

27. There will shortly be a discussion on the subject ‘The Netherlands for sale’. I predict that the other side of our open and attractive business climate will come under close scrutiny. I am referring to the recent foreign takeovers of Dutch companies. As I have already explained, the Netherlands has an open and transparent economy. In a globalising world, this offers many advantages. In fact, it is the only way to survive.

28. We have to accept that takeovers are not a one-way street. In view of my portfolio, I am particularly interested in their tax dimension. Especially interest relief. A takeover by a private equity party is often financed with a very large interest-bearing loan. The debt of the company taken over sometimes shoots up as a result. It can then benefit from interest relief. This has stirred up a lot of controversy.

29. Here, too, we must not exaggerate the problem. But it is true that tax revenue may be adversely affected. This might be an interesting point to put to Mr Oppetit, whom you will meet later this afternoon. We are discussing the issue with the business community. I am taking it seriously, and I am concerned.

30. International developments seem to be causing an increase in interest relieve throughout the world. It is actually quite strange that we give a hefty takeover bonus to foreign private equity firms, or other companies for taking over Dutch companies. A tax bonus that is, for takeovers financed with a very big loan. In many cases the party that was taken over, “the target”, is stacked with borrowed capital, so it is funding her own takeover. And it gets a tax deduction so large, that corporation tax evaporates. I am planning to send a letter to Parliament on this very subject, as soon as we have a clear view of what exactly is going on.

31. If the tax base is eroded, I will respond with new legislation, if I have to.

[Conclusion]

32. The business climate benefits from certainty. Our fiscal policy is successfully contributing to this. Our tax system is competitive.

33. As a former ICT entrepreneur, I cannot resist using a software term: our tax climate is WYSIWYG – what you see is what you get. You know in advance what you are dealing with, and companies appreciate this.

34. We will continue to address this issue. And we always welcome any help we can get. If you are still wondering what to do after completing your studies, my advice would be to go into business. Of course, I say this has an enthusiastic ex-entrepreneur.

35. But another good option is to get a job at the Ministry of Finance. The only employer which not only expects you to know the rules, but also gives you the chance to make them.

Thank you.