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Netherlands Eyes Tax Treaty Update With Developing Countries

by Ulrika Lomas, Tax-News.com, Brussels

05 September 2013


The Dutch Government has announced plans to significantly improve tax transparency and to combat international tax avoidance, notably by updating tax treaties with low- and middle-income countries.

In a letter to the Dutch Lower House, Dutch Foreign Trade Minister Ploumen and State Secretary for Finance Weekers explained that the Government intends to revise existing tax treaties with Zambia and with 22 other developing countries, to allow the incorporation of anti-abuse clauses where necessary, ensuring that developing countries recover due taxes, vital for infrastructure and education.

The Netherlands has tax treaties with over 90 countries. Although its international treaties are in line with tax agreements in other countries, the tax accord with Zambia, dating from 1977, is outdated, and most treaties do not contain anti-abuse clauses. As a result, their unintended use continues to pose a risk in the Netherlands, and leads to a loss of much-needed fiscal revenues for poor countries.

The Dutch Government therefore aims to implement a series of concrete general measures aimed at clamping down on international tax avoidance. The Government will ensure that the substantial activity requirements apply to more companies. In addition, the Netherlands intends to inform its treaty partners spontaneously when, in retrospect, a company turns out not to meet the substantial activity requirements. By improving information exchange with the source country, that country will then be in a position to deny the treaty benefits to a corporation.

Information exchange will also apply in future to particular financing companies that have obtained advance certainty. Additionally, the Tax Administration will only process requests for a tax ruling from holding companies if the group in which they operate has sufficient ties with the Netherlands.

Furthermore, the Government plans to take targeted measures specifically aimed at low- and middle-income countries. It will suggest to Zambia that the existing tax treaty from 1977 be renegotiated and that anti-abuse provisions be included. The Netherlands also plans to approach other low- and middle-income countries to ascertain whether or not they wish to add anti-abuse clauses to the existing treaties.

Finally, the Netherlands intends to expand, where possible, the technical assistance it provides to developing countries to strengthen tax administrations, thereby improving tax collection, reducing the number of unnecessary tax exemptions, and combating tax evasion and avoidance.

Commenting, Dutch Foreign Trade Minister Ploumen said: "By making use of loopholes in tax treaties in combination with differences between national tax rules, internationally operating companies can avoid paying tax. It means that poor countries miss out on tax revenues, funds they clearly need for matters such as infrastructure and education."

State Secretary for Finance Weekers added: "The Dutch Government favors a worldwide tightening of the rules and greater transparency through consultations in the OECD, G20 and the EU. Measures taken by the Netherlands on its own cannot prevent companies from using a different route; they merely shift the problem. But there are some things we can do. And so we will focus our efforts on improving transparency."

TAGS: compliance | Finance | tax | tax compliance | Netherlands | tax avoidance | Organisation for Economic Co-operation and Development (OECD) | corporation tax | agreements | education | Zambia | tax breaks | G20 | European Union (EU) | Europe | Tax

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