Dutch tax treaty policy differs considerably from practice regarding developing countries

News

6 August 2020

When the Netherlands concludes tax treaties with developing countries, the treaties contain lower rates than promised on the basis of Dutch policy. As a result, developing countries are missing out on badly needed revenues, and the policy further encourages treaty abuse, according to the Centre for Research on Multinational Corporations (SOMO). This is the main conclusion of their new study of the 2011 Memorandum on Tax Treaty Policy (Notitie Fiscaal Verdragsbeleid), in which the Dutch government laid down its general policy for tax treaties.

The Netherlands has concluded bilateral tax treaties with about 100 countries, about a fourth of which are developing countries. Post-2011 Dutch tax treaty policy supposedly takes into account ‘(…) the particular interests of developing countries by enabling them to provide their own resources’(…). The policy furthermore states that in treaties with developing countries, the Netherlands intends to agree to higher rates for withholding taxes than in treaties with non-developing countries. However, an analysis of all treaties concluded (or renegotiated) since 2011 shows that the agreed rates are still far too low.

With the single exception of Ethiopia, which itself pushed for lower rates, it is the Netherlands that urges lower rates in all the cases examined, in contradiction to its formulated policy. Maarten Hietland, a researcher with SOMO, says, ‘With regard to this point, the Netherlands’ international tax policy is hypocritical. The bottom line is that the interests of international companies apparently still have more clout than those of developing countries.’

Given the large numbers of tax treaties that the Netherlands has concluded, and the pressure put on developing countries to agree on low rates for withholding and other taxes, the Dutch practice accelerates the international ‘race to the bottom’. Maarten Hietland: ‘consequently, other countries feel forced to agree to lower tax rates, thereby missing out on revenue which could be spent on health care, education and environmental and climate measures.’