The Netherlands may be a country of parsons and peddlers but when it comes to acquiring head offices we like to think big, says Neelie Kroes.
Foreign multinationals such as Ikea, easyJet, Hitachi and Hilfiger have made the Netherlands their home base. Hundreds of letterbox companies are enjoying a view of the Parnassus tower and even rock stars Bono, David Bowie and the Rolling Stones have an address in our country. Coincidence it is not.
The Netherlands is a fiscal paradise. It is an open secret that with a bit of know-how taxes on profit can be very low. And it’s legal as well. The present system promotes opportunism. The country with the lowest taxes becomes the fiscal base.
It is not very productive to have a European home market and have its members compete with each other in fiscal matters, leaving lots of room for fraud and tax evasion causing an annual loss of €1,000bn in tax. That is more than the annual healthcare bill of all the EU countries put together.
iPhone and Pleistocene
The thing is that EU competitiveness and hundreds of different national fiscal systems go together like an iPhone and the Pleistocene. According to the international basic principle, tax is paid in the country where the economic activity takes place. This is open to interpretation in a world economy.
Companies and their subsidiaries have management departments, R&D labs, production and service facilities on more than one continent. Billions of transactions are being performed between one continent and the next with dazzling speed. It is hard to establish where taxes are being paid or where they should be paid.
In order to tackle the problem, the EU has been discussing the road to more fiscal harmonisation for the last few years. Until now it has limited itself to recommendations: fiscal matters are a matter for national governments. There’s a European fiscal code and a taxpayers’ charter. Consumer power is a force to be reckoned with, too, as Starbucks found out when it was revealed the company hardly pays any tax in the United Kingdom. People may like the coffee but they don’t like tax avoidance.
If we want to solve this problem – and we owe the taxpayers and the tax paying companies a solution – we need to bring our national fiscal system in line with the ambitions we have for our home market. It means not only sharing information about where multinational companies pay tax, as was discussed last week, but also striving for a common fiscal basis. Once this is in place we can, via the G20, work towards a global level playing field. And then, finally, we’ll have arrived in the 21st century.
Neelie Kroes is eurocommissioner for the Digital Agenda.
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