The Netherlands Surprised, “Miffed,” by Obama’s Tax Haven “Slur”
The Dutch press is indignant at President Obama for including the Netherlands in a group of three countries which he calls the top three corporate tax havens.
The Dutch newspaper NRC Handelsblad calls it a “tax haven slur,” and the popular news and information web site for internationals, Expatica.com, carries the headline, “The Dutch government has been branded by US President Barack Obama as one of the world’s top three corporate tax havens.”
Radio Netherlands has the headlines, “Obama targets ‘tax haven’ Netherlands—US taxes disappear in Dutch-Irish-Bermuda triangle,” and continues,
The Netherlands is a corporate tax haven for US multinationals, and together with Ireland and Bermuda it is sheltering companies’ earnings from the American tax authorities, president Barack Obama said on Monday. As long as they keep their earnings overseas US companies are legally exempt from paying. Taxes only become due when the money is “repatriated” to the United States.
The Dutch embassy in Washington has also reacted with surprise and anger to Obama’s “qualification” of the Netherlands as a tax haven country and lumping it in with a group of low tax havens many corporations use to avoid paying U.S. taxes .
To be fair, Obama did not name any countries in his speech announcing a series of proposed policies intended to combat tax evasion by wealthy Americans and American corporations who use such tax havens to minimize or avoid paying U.S. taxes. However, the Treasury Department released a fact sheet that said “nearly one-third of all foreign profits reported by U.S. corporations in 2003 came from just three small, low-tax countries: Bermuda, the Netherlands and Ireland.”
According to Expatica.com:
The Dutch Finance Ministry has reacted with astonishment to the list presented by US President Barack Obama on Monday, which names the Netherlands as one of the world’s top three corporate tax havens, together with Bermuda and Ireland.
The Dutch embassy in Washington has contacted the American authorities to express its amazement.
A spokesperson said the Finance Ministry is working with its US colleagues to trace the origin of this misunderstanding, and to get it out of the way. The spokesperson added the Netherlands has “a very average tax level”.
In “White House miffs Dutch over tax havens,” The Hill quotes Dutch embassy spokesperson Floris van Hövell as saying that the Dutch corporate tax rate is 25.5 percent, “which puts us in the medium-tax rate category (and not in the low-tax category).”
More ominously, Van Hövell writes to The Hill: “The Netherlands is the 16th largest economy in the world and the 4th largest investor in the USA; the USA is the largest investor in the Netherlands.” And adds: “Given the tax-treaty between the U.S. and The Netherlands, the great number of bilateral tax treaties between the Netherlands and other countries and the absence of withholding taxes and royalties make the Netherlands an attractive location for foreign investors.”
With impressive figures such as these, I am sure the “misunderstanding” will be quickly resolved.
I am not aware of any immediate reaction from the other two members of the “Dutch-Irish-Bermuda triangle.”
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Interesting that the White House dropped their beef with Switzerland over the same issue after they agreed to house Guantanamo detainees…
So what do the Irish have to say?
From the Irish Times:
There was a cautious reaction here to Mr Obama’s proposals. A spokesman for the Department of Finance said: “We will be studying the proposals in detail to consider their impact on Ireland.”
A source close to the department said its initial view was that Mr Obama’s proposed measures will target offshore tax havens rather than countries like Ireland that offer low corporate tax rates but have transparent tax treaties with the US.
IDA chief executive Barry O’Leary said this morning the agency had expected the measures to be more severe and was not overly concerned that the proposals would deter US firms from investing here. He pointed out that the plan was “well signalled” in advance by Mr Obama and yet US companies such as Hewlett Packard, Intel and Paypal have continued to invest heavily in Ireland.
The Irish Government has lobbied the Obama administration energetically in recent weeks in an effort to avert changes in the rules governing tax deferral.
In addition, Mr O’Leary said the agency has been working closely with US tax advisers for the past three years and a senior IDA executive has been sequestered to the Irish embassy in Washington DC to work with diplomatic staff on the “influencing agenda”. He said Ireland has to emphasise that it is still a good, profitable place to do business, rather than simply a place to secure low tax rates.
Mr O’Leary explained that Bermuda is typically regarded as a tax haven, while the Netherlands is regarded as a holding company location that doesn’t have a great deal of substance. “Ireland is part of the equation that brings huge substance with multinational investment so I think Ireland is quite different from the other two locations,” he said.
“It’s also important to bear in mind that Ireland’s success has predominantly been in the high-tech, IT industry and the live sciences and they are very profitable businesses globally in any case so you would expect that the profits would be much higher than most businesses.”
While there would be some uncertainty over the next year to 18 months, Mr O’Leary was confident Ireland will not be too severely affected. “It does appear from initial reading that we’ll fare pretty well out of this whole process,” Mr O’Leary said.
Feargal O’Rourke, an international tax partner with PricewaterhouseCoopers in Dublin, said: “The good news is that their primary focus is on tax havens, which we are not. There is no abolition of deferral. That’s the really good news.”
Yesterday’s proposals are less severe than the worst-case scenario for Ireland – a complete repeal of the right to defer paying US taxes on overseas earnings – and the new rules on expense deductions include an exception for research spending.
The proposals would, however, reduce the tax advantage for US corporations investing in Ireland and the US Chamber of Commerce yesterday condemned them as an unacceptable burden on American firms.
Unlike other countries, the US demands that its citizens and corporations pay US tax on all their worldwide earnings. Corporations can, however, defer paying US tax on foreign earnings until those profits are repatriated. The top US corporate tax rate is 35 per cent, compared to Ireland’s 12.5 per cent, giving US multinationals a lucrative incentive to invest in Ireland.
I think that it's a great idea to make it more expensive for multinational companies based in the US to operate. I mean what are they going to do move there whole operation offshore? Oh, wait a minute they can do that can't they? And it would be cheaper? Hmmmm I wonder if it will work out as good as the Govt seems to think?
Come to think of it, we have our own “tax havens” here in our own USA.
For example, how many states, counties, municipalities,etc., offer all kinds of tax advantages (“incentives”) to corporations in order to seduce them to settle in their state, county, community, etc.?
Dorian
We need smaller government – and a government that will make US corporations more competitive in the global market. Higher corporate taxes at home will push more jobs away from the US. For those that want to better understand the complete picture on tax havens take a look at this link. http://pfx.me/ly
Actually once the Dutch Secretary Of Finance contacted the White House through the Embassy, the Obama administration appologized & removed the Netherlands off the “list”
Apparently some offshore tax haven seekers are more equal than others. Maybe Obama should look toward the Congressional leaders in his own party to stop finagling fundraising deals in exchange for protection of their offshore operations, instead of ticking off our allies.
Dorian, you're right that there are tax advantages of operating in certain states, but none of that helps reduce the exorbitant federal tax rate. It makes no sense to go after the loophole seekers instead of doing what's been proven to work- reduce the rate. Whether it's individuals or corporations, when the rates are high there's a great tendency to shelter income but when the rates are reasonable, the taxes just get paid.
deboode:
Thanks for the update
CS:
Comments well taken
(I once enjoyed an overseas federal income tax “haven”—a very legal one, I hasten to add.)
Dorian