Reasons to leave the single market [5]: the Dutch Auction of our taxes

Reasons to leave the single market [5]: the Dutch Auction of our taxes

by Brian Monteith
article from Monday 20, February, 2017

WHILE MOST PEOPLE – irrespective of their political leanings – are disgusted with the low amount of taxation paid by big corporations, few pretend to understand how it happens and practically everyone feels powerless to prevent it. They dismiss it as the inevitable consequence of big companies having expensive lawyers and accountants, and that the most they can do is decide not to have a coffee at Starbucks or buy goods from Amazon.

Well, we can do something, we can change the rules and by voting for Brexit we began that process – but we have to finish the job by ensuring that Brexit means we leave the Single Market and its Customs Union – just as David Cameron, Boris Johnson and Nicola Sturgeon said that’s what it meant.

For the truth is that the simple reason the abuse of our corporate taxation system happens is because the UK is in the EU’s Single Market – it really is that simple!

It is the Single Market rules that allow the free movement of company turnover within Member States of the EU so that it can be taxed elsewhere. It is all the more reason then that Scotland be it within the UK, as I would prefer, or independent, should be outside the EU’s Single Market. Only this positioning of Scotland’s commercial laws will protect us from buying goods and services that are then taxed for the benefit of other countries.

There is a particularly obnoxious form of this wheeze which should be more widely known as the Dutch Auction model that shows how the system typically works. A new report from Global Britain has the details, but I shall summarise it here.

The Netherlands has built up an industry of lawyers and accountants to provide “legal flags of convenience” for multinational corporations so they can avoid billions of tax. This legal cover ensures the Dutch authorities can turn a blind eye to the dubious practices of mock company board meetings, disguised inter-company loans and failing to charge tariffs on imported goods. These practices cost the UK exchequer at least £650 million a year, with the likely figure being over a billion or two. A Scottish share of this lost taxation would be in the region of £65-£100+ million.

The Netherlands is meant to be our partner in the Single Market but the reality is that Dutch law firms offer specialised services to act as company directors for Dutch registered offshoots of multinationals, so that overseas companies can get round UK tax rules. The Dutch government works on the principle that when taxing company operations two per cent of something (what they are able to receive) is better than 100 per cent of nothing (what they would get if they played by the rules) – and so the UK ends up the loser.

As well as getting a small amount of tax the Dutch lawyers and their support services get all the legal and tax-related work and that is worth hundreds of millions more.

The Dutch authorities issue tax rulings for fixed, annual amounts of tax payable by a multinational that registers a Netherlands company (known as a B.V.) even when the assumptions used to calculate the amount were implausible and when they differ from the B.V.’s actual profits.

Dutch lawyers and trust companies stretch credibility in the practices used to prove that management control of the B.V. is being exercised from the Netherlands. They co-operate with other countries, principally Switzerland, to allow the largest multinationals to almost eliminate any corporation tax as long as they agree to a certain level of spending in the Netherlands and Switzerland.

There is another practice where the imports of goods from non-EU countries are documented as the property of a Dutch B.V. when they arrive in a port like Rotterdam. This circumvents EU customs duties and causes the cash contributions of EU Member States to rise – as the lost tax has to be made up by higher EU membership fees. As the UK is a net contributor to the EU it takes the hit while the multinational, Dutch tax officials and lawyers laugh all the way to the bank.

The Dutch authorities also allow a small bank to operate out of the Netherlands whose speciality is to dress up intercompany Loans as Bank Loans, thereby circumventing controls on deductibility on the interest of such loans against tax, and again reducing the UK’s corporation tax-take.

These tax dodges are entirely legitimate thanks to the EU Single Market. No one is doing anything legally wrong, but the putrid stench of low business ethics is sickening. 

We need to take control of setting the terms upon which foreign multinationals can do business in Britain. The multinationals would not leave the UK – they do a huge amount of business here – the fact that they can reduce their tax liabilities is a bonus – it is not the reason they located here in the first place. After all, they pay corporate taxes in practically every other country outside the EU that they operate in.

So, the outcome is that while the corporations would have their profits reduced they would not see it as unfair or punitive.

In summary, the Netherlands has trained an army of professional services staff to operate these unethical practices and the only way to escape the smell and clean up multinational behaviour is for the UK – including Scotland – to leave the Single Market and start taxing those companies properly. It’s the just and moral thing to do.

Theresa May has promised this is what she intends to do, while Nicola Sturgeon is fighting to keep us in the Single Market. I’ll leave it to the reader to decide who is putting Scotland’s interests first and who, by siding with the multinational tax dodgers, has lost her moral compass.

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