The Dutch government is introducing tough new conditions for advance tax rulings from next July, with the aim of weeding out thousands of shell companies which use the Netherlands to avoid tax.

In addition, the tax office will publish anonymised summaries of each rulings on its website in an effort to boost transparency, tax minister Menno Snel said on Friday.

‘Lots of people think that tax rulings are coupled with dodgy practices,’ Snel said. ‘But a ruling does no more than give a company clarity in advance about taxes, based on the law.’

However, to prevent the Netherlands being used as a clearing house for tax havens, the advance tax ruling laws are being tightened up and made more transparent, Snel said.

From next year, companies applying for a ruling will have to have ‘substantial economic activities’ in the Netherlands, rather than just a letter box. In addition, the amount money flowing through the company must be in line with its activities in the Netherlands.

‘For example, it would not be logical if a distribution centre with a workforce of 100 was busy managing billions of euros in loans,’ the finance ministry said.

All international rulings will be checked in advance by a special panel of experts and rulings will only run for a maximum of five years.

Motive

In particular, the reason why the company is asking for a ruling will become more important. ‘If the motive is to save Dutch or other tax, no ruling will be granted,’ the ministry said. The same applies to transactions with companies based in low cost countries or which are on the EU blacklist.

The ministry began reassessing almost 4,500 international tax rulings earlier this year, following revelations in the Paradise Papers. Dozens of errors were found, prompting the minister to say at the time he would overhaul the system.

Researchers at the University of Amsterdam said in 2017 the Netherlands is the biggest conduit to offshore tax havens in the world, with almost a quarter of fiscal constructions having a Dutch link.

Other research published by the NRC showed that multinational companies that register a headquarters operation in the Netherlands can receive very substantial discounts – up to 80% – on their corporate tax bills.