The Netherlands haven for companies that violate human rights

The Netherlands is host to companies that are involved in human rights violations all over the world. This follows from new research by SOMO (The Research Centre on Multinational Corporations) on the relationship between Dutch tax and investment policy attracting international businesses to the Netherlands, and human rights.

Private Gain, Public loss

Whilst the Dutch government, in its recently published policy statement on corporate social responsibility (CSR), states that CSR is no longer non-committal, it fails to introduce effective measures. The voluntary nature of CSR and “the importance of corporate self-regulation” is emphasised not only in the government’s new CSR strategy, but also in a human rights policy note published in June 2013 entitled ‘Respect and Rights for every human being’. In light of the research findings presented in the SOMO-report, this is an outdated and clearly insufficient approach.

Almost all big multinational corporations (MNC) in the extractive industry have incorporated subsidiaries in the Netherlands, largely motivated by tax benefits. SOMO has researched eight of these ‘Dutch’ companies, which are all associated with serious human rights violations abroad. These violations range from environmental pollution seriously damaging the health of local populations to militia violence, murder and displacement. Parallel to these direct human rights violations, the research finds that the Dutch government facilitates international tax avoidance whilst it does not take into account the potential negative impact of its policies on human rights. As the United National recently recognized, tax avoidance by multinational corporations, however, undermines the protection of human rights in developing countries.

Holding corporations accountable

All researched MNCs are found to be associated with human rights violations in countries of operation, from Peru and Argentina to Indonesia and Ivory Coast. Take Pluspetrol, for example. The oil company incorporated its head office in the Netherlands. After decades of oil spills generated by Pluspetrol as a result of rusting pipelines and lack of restoration, the Peruvian government declared an environmental state of emergency in the region in which Pluspetrol has operations, because of high levels of barium, lead, chrome and petroleum-related compounds. This case highlights how the livelihood and health of local communities are negatively impacted by the activities of companies incorporated – at least on paper – in the Netherlands.

Regarding corruption and money laundering, the OECD and IMF have repeatedly pointed out existing liability risks associated with the insufficiently regulated Dutch mailbox sector. The OECD explicitly states that in relation to corruption, the Netherlands attract many internationally operating companies that are active in so-called risk sectors, in particular the extractive industry. The SOMO-report argues that the same applies to human rights.

Companies worldwide are increasingly held accountable by victims of human rights violations, also if these take place as a result of operational activities in other jurisdictions. Well-known examples are the court cases initiated by the victims of Shell and Trafigura. By having insufficient insight into risky human rights practices of companies incorporated in the Netherlands and blindly trusting self-regulation, the Dutch government has no knowledge of potential liability issues and the human rights impacts of these companies.

Human rights and tax avoidance

States require sufficient financial and administrative resources to ensure that the economic and social rights of their citizens are protected. Countries that host extractive operations are often characterised by high levels of poverty and an uneven distribution of wealth. Research shows that progressive tax systems contribute to good governance, democratic development and poverty alleviation. Large-scale tax avoidance by MNCs undermines this goal.

The Netherlands play a crucial role in global tax avoidance. SOMO recently calculated that 28 developing countries lose at least 771 million euros annually in tax income on interest and dividend payments as a result of Dutch tax treaties only. Because data on more countries and capital flows are not accessible, the number of countries losing out as a result of the Dutch fiscal regime and the amount of lost revenue will be much higher. The corporate structures of the researched MNCs with important subsidiaries in the Netherlands point to tax avoidance. They are mailbox companies with little or no substance in the Netherlands. They invest in foreign subsidiaries via the Netherlands, leading to a reduction of the tax revenue that should be generated in these source countries as a result of this investment. The Dutch financing entities all have ties with other subsidiaries incorporated in tax havens.

For example: the world’s biggest gold producer – the Canadian company Barrick Gold – finances her Argentinean subsidiary through a Dutch holding company with capital on lent from a subsidiary located in Bermuda. The interest payments from the Argentinean subsidiary to Barrick’s Dutch financing entity enjoys lower withholding tax rates due to the Dutch-Argentinean treaty, whilst the Netherlands does not levy withholding tax on outgoing interest payments, even if they are made to a tax haven. This way, the interest income of the group remains taxed at a very low rate, which allows for profit to be shifted out of the Argentinean subsidiary to low-tax jurisdictions. By actively facilitating this type of fiscal planning, also by providing legal security to the company in the form of tax rulings, the Dutch government contributes to revenue losses in countries of operation. This damages developing country economies and thereby negatively impacts on human rights.

Conclusion

The SOMO-report concludes that despite international human rights obligations, the Dutch government fails – and shows no political will – to effectively regulate international businesses incorporated in its jurisdiction. It does, however, have ample opportunities to regulate corporations. The fact that the Dutch government does not take responsibility for the human rights impacts of Dutch businesses operating abroad is indefensible. Corporations that are found to violate human rights abroad should not enjoy Dutch fiscal and investment benefits. Potential victims of human rights violations and civil society organisations have to be enabled to seek justice in courts and/or monitor human rights situations. This requires stricter transparency and reporting obligations to be imposed on companies incorporated in the Netherlands and the implementation of effective accountability mechanisms.