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Netherlands Tax Havens Giving US Companies Trouble, EU Fines

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Come to the Netherlands, stay for its charm and history, but now it may not be wise to consider parking some corporate cash while visiting Holland. The Netherlands is trying to shake its reputation as a tax haven for multinational corporations, which continues to make it harder for corporations to use the country to hide some of its money.

Some corporations that already did cut a deal with the Netherlands are getting hammered by the European Union in penalties, with more investigations coming, The New York Times reports. The Netherlands isn’t getting away without damage though, with the country facing possible repercussions for effectively offering different rates than what’s standard across European Union member nations. Some even suggest the country made these deals as part of a scheme to draw in money.

The Netherlands is just the latest country to face greater scrutiny about some of its tax practices for multinational corporations, joining the likes of Luxembourg, Gibraltar, Belgium, and Ireland. The Cayman Islands and Panama still take the cake as the premier places to shelter money from taxation, and it’s not such a bad vacation spot for your Franklins, Jacksons, Lincolns, and Washingtons.

Amazon had to pay almost $325 million to Luxembourg. Photo Credit: Shutterstock

One case against a corporation appears to be forming as authorities from the European Union start to investigate if Nike used the Netherlands as a means of avoiding some taxes. If there’s a strong case, Nike could become yet another company to take a financial hit from penalties in recent years. Amazon had to pay almost $325 million to Luxembourg, Apple owed Ireland $16.5 billion, and Starbucks doled out nearly $29.5 million in cash to the Netherlands in 2015.

The investigation will examine if and how the government negotiated with the mostly American multinational corporations to allow the businesses to pay almost nothing on any money brought into the country, and the country would get the headquarters and good jobs in return.

The Dutch Finance Ministry responded to the news by saying it would fully comply with investigators. “We fully support the work of the commission,” according to a statement put out by the ministry.

Nike, however, says the situation is “without merit” and believes there should be no investigation.

The government’s Finance Ministry can create agreements with corporations on what rates should be paid on taxes and then runs approximately $25.3 trillion through offshore tax havens, according to The New York Times.

Apple owed Ireland $16.5 billion. Photo Credit: Shutterstock

The International Consortium of Investigative Journalists, which includes the New York Times as a member, has been trying to learn more about tax havens and have exposed them in some reports like ones dubbed the “Panama Papers” and the “Paradise Papers.” The Paradise Papers cracked a window that let us peek into some ways Nike lowers its tax obligations, with the New York Times explaining a good example:

“First, Nike allocated ownership of its ‘swoosh’ trademark and other intellectual property to a subsidiary in Bermuda, which has no corporate income tax. The subsidiary in Hilversum then paid royalties for the use of the trademarks to the Bermuda unit. The royalties counted as business expenses and therefore were not taxed in the Netherlands.”

The consortium also revealed that Nike paid an effective worldwide tax rate approaching 13 percent in 2017, leaving funding holes in governments, totalling billions of dollars that could have been used for infrastructure projects or healthcare. They got the 13 percent rate by figuring out the rates Nike paid in each country where it has money. For example, Nike could pay little to no taxes in a haven like the Cayman Islands or Panama but pay closer to 30 percent in other countries. When all of those rates are averaged, the effective tax rate on worldwide sales for Nike went as low as 13 percent in 2017.

The Jewish Voice has been following along with these developments and following through with its own reporting. The Voice reported about the Netherlands wanting to change its reputation by shifting away from the image of being a tax haven. The Finance Ministry put forward proposals for Parliament aimed at stopping corporations from being able to park money in the country as a means of avoiding taxation back at home.

The Jewish Voice also reported about how the Netherlands could possibly use levies on profits going into these tax havens and closing a loophole that will prevent companies from gaming the system twice, as one example of a way to start moving in the right direction, but support for these changes will most certainly not be unanimous. They will have to overcome opposition from interested and powerful parties.

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