Thesis Master of Business Studies
What role do tax advisors play in attracting international companies to the
Netherlands?
Student: M.L.E. van Duijn Student number: 6157467
Track: International Management Supervisor 1: E. Dirksen MSc Supervisor 2: Dr. J.P. Lindeque Version: Final version
Foreword
This thesis is the final stage of my Master Business Studies in the track International Management. I want to thank everybody who helped me to complete my Master thesis. I want to thank E. Dirksen MSc for brainstorming about my topic and guidance throughout the process. I want to thank the tax advisors which I interviewed for this study: Judith van den Akker-Kars, Onno Backx, Stephen Brunner, Mark van Casteren, Robert Citgez, Hendrik-Jan van Duijn, Jurgen van Hattum, Cees Jorissen, Nico Koppel, Ton Krol, Jeroen Kuppens, Jeroen Mijlof, Martijn Munniksma, Wiecher Munting, Silvain Niekel and Boian Popov. Without your help I couldn’t do the research and write this thesis. I also would like to thank my boyfriend, family, friends and colleagues for their excellent ideas and the provision of their network, which allowed me to approach the tax advisors.
Abstract
This study examines the role of tax advisors in attracting international companies to the Netherlands. The study is a response to the statements of State Secretary Weekers during the annual meeting of the Dutch Association of Tax Advisors about ‘the role of tax advisors in the public discussion about international companies (without substance) which make use of the Dutch tax system’, in June 2013. The research is done through semi-structured interviews with 16 tax advisors in the Netherlands. It discusses the themes: (1) the attractiveness of the Netherlands; (2) the tax advantages of the Netherlands in practice; (3) the debate on tax avoidance; (4) the initiatives against tax avoidance; and (5) the role of the tax advisor. This research found that tax advisors will contribute positively in the public debate on tax avoidance, will be nuanced in giving critics when international rules against tax avoidance are introduced and tax advisors are generally positive about ‘finding a balance’ between advising on aggressive tax planning and socially desirable advices.
Table of contents
Acronyms and abbreviations 5
1. Introduction 6
2. Literature review 8
2.1. Attractiveness of the Netherlands 8
2.2. Tax avoidance 11
2.3. Debate on tax avoidance 14
2.4. Initiatives against tax avoidance 16
2.5. Role of the tax advisor 18
3. Methods 20
4. Results 26
4.1. Attractiveness of the Netherlands 26
4.2. Tax advantages of the Netherlands in practice 31
4.3. Debate on tax avoidance 32
4.4. Initiatives against tax avoidance 34
4.5. Role of the tax advisor 37
5. Discussion 39
6. Conclusion 44
Appendix 1 Semi-structured interview script 49
Appendix 2 Interview transcripts 50
Respondent 1 50 Respondent 2 56 Respondent 3 68 Respondent 4 76 Respondent 5 81 Respondent 6 89 Respondent 7 100 Respondent 8 110 Respondent 9 117 Respondent 10 125 Respondent 11 132 Respondent 12 143 Respondent 13 155 Respondent 14 163 Respondent 15 175 Respondent 16 181
Acronyms and abbreviations
APA Advanced Pricing Agreement BEPS Base Erosion and Profit Shifting CSR Corporate Social Responsibility FDI Foreign Direct Investment GPN Global Professional Network IP Intellectual Property
MNE Multinational Enterprise
OECD Organisation for Economic Co-operation and Development NFIA Netherlands Foreign Investment Agency
SPE Special purpose entity VAT Value added tax
1. Introduction
This is a study conducted among tax advisors in the Netherlands. The study is a qualitative research, involving semi-structured interviews with 16 tax advisors. This study examines the role of tax advisors in attracting international companies to the Netherlands. The speech of the former State Secretary Weekers on the Dutch tax climate, during the annual meeting of the Dutch Association of Tax Advisors (Nederlandse Orde van Belastingadviseurs) in June 2013, is the cause for this research.
In this speech, State Secretary of Finance, Weekers stated that the protests against aggressive tax planning have increased in recent years (Weekers, 2013). Weekers (2013) mentioned the economic setbacks of the recent years as the reason of this attention. In order to restore the Dutch economy, according to Weekers (2013) it is important "to focus on opportunities in the export and to interest foreign investors in our country". The foreign investments are important, because they bring business and employment to the Netherlands (Weekers, 2013). The Netherlands can be attractive for foreign investors because of the “tax incentives for innovative companies, the large number of tax treaties and the participation exemption to avoid double taxation, and the efficient functioning of the authorities”. Further, Weekers (2013) appoints the favourable Dutch tax climate to interest businesses, but also emphasizes that there is much resistance against this from the public.
There is resistance against international companies without actual establishment in the Netherlands, which make aggressive use of tax regulations. These companies “operate within the boundaries of the law, but are going beyond the limits of public
sympathy” (Weekers, 2013). Weekers (2013) appoints to the Base Erosion and Profit Shifting (BEPS) report from the Organisation for Economic Co-operation and Development (OECD) and country-by-country reporting, to provide in EU context borders against this type of aggressive tax planning. Weekers (2013) mentioned that the Dutch government is working together with other countries to make arrangements for a level playing field, but also argues that tax advisors play a role. His appeal to them is threefold: (1) to contribute to the public debate on tax avoidance, (2) the request to be nuanced in giving criticism when international rules be tightened, and (3) to find a balance in the daily advisory. The State Secretary asked the tax advisors to engage constructively, to protect the profession of the tax advisor and the image of the Netherlands as an attractive country for foreign investments (Weekers, 2013).
This study examines the role of the tax advisor. The research question is: ‘What role do tax advisors play in attracting multinationals to the Netherlands?’. This research starts with the most relevant literature found on this topic. Then, the data and the methods used for the research. After that the results section which examines the opinion of tax advisors about the attractiveness of the Netherlands for international companies, the tax advantages of the Netherlands in practice, the public debate on tax avoidance and the revisions of international tax rules. Followed by the discussion, and afterwards the conclusion.
2. Literature review
In the Netherlands, there is public concern about the effects of international companies using the Dutch tax system. According to SEO Economic Research (2013, p. i) there is a debate unleashed about “the extent in which companies can make use of the Dutch tax treaty network, how this leads to tax avoidance by multinational corporations and whether this results in erosion of tax revenues for developing countries”. This section elaborates on the companies that make use of the Netherlands, the discussion about tax evasion and avoidance, the initiatives that have been proposed to change tax avoidance and the role of tax advisors in this discussion.
2.1 Attractiveness of the Netherlands
Several researchers investigated the attractiveness of the Netherlands for international companies (Van Dijk, Weyzig & Murphy, 2006; EY, 2013a; KPMG, 2013; SEO Economic Research, 2013). Between those studies, a distinction can be made in the attractiveness of the Netherlands for companies with “factual, real presence of companies" also termed ‘substance’ and companies that make use of the Netherlands without significant commercial or operational presence (SEO, 2013, p. i).
The location choice of international firms with real presence, depends according to Davidson (1980) on country-specific factors. Country-specific factors may be: market size and growth, tariff and non-tariff barriers to trade, geographical proximity, input costs, legal-, political-, location- and economic conditions and the similarity to the investing firm´s home country. The favorable country-specific factors can also be referred to as country specific advantages (Verbeke, 2013). Besides that the company
itself has certain firm specific advantages, the firm can profit from the country specific advantages when it engages in foreign direct investment (FDI). According to Verbeke (2013, p. 32) FDI can be defined as “the allocation of resources (combinations of physical, financial, human, knowledge and reputational resources) by an multinational enterprise (MNE) in a host country, with the purpose of performing business activities over which the MNE retains strategic control in the country”. There are four factors that encourage the company to start operating in the host country; (1) natural resource seeking; (2) market seeking; (3) strategic resource seeking; and (4) efficiency seeking (Verbeke, 2013).
Flores and Aguilera (2007) examined the location choices of the top 100 US multinational corporations in 1980 and 2000. This study showed that multinationals nowadays invest in countries with a large population, a corresponding culture and contrary to the expectations, countries with high wages (Flores & Aguilera, 2007). Birkinshaw, Braunerhjelm, Holm and Terjesen (2006, p. 698) state that there are “factors over which the country have some control (e.g., tax rates, economic stability) and factors that are truly exogenous (e.g., Sweden's geographical location on the periphery of Europe)”.
Wilson, Hubbard, and Slemrod (1993) examined how tax influences companies’ decision on the location choice of FDI, with a descriptive study which is based on interviews with the chief financial officers and high-level manufacturing-, treasury-, tax- and strategy managers of nine firms. This study showed that “firms assign facilities in their product value chains to countries where the maximum value is added at the minimum after-tax cost” (Wilson et al., 1993, p. 228). The tax factor by making
investments is important, because the return of FDI is always subject to international double taxation (De Mooij & Ederveen, 2003). Double taxation occurs “when the same tax is levied twice on the same legal person” (Picciotto, 2004, p.16). This double taxation occurs because the subsidiary is subject to corporate income tax in the host country and the profits can be taxed once more in the home country of the parent (De Mooij & Ederveen, 2003). Because this is not desirable, most countries make use of bilateral tax treaties for the international coordination of taxation (Picciotto, 2004).
The attractiveness survey of EY (2013a) about the Netherlands, is a survey of 216 decision makers of international companies. This study showed that despite the difficult economic times, foreign investors are confident to invest in the Netherlands. Investors find the Netherlands attractive for the factors; “quality of life, telecommunications, transport and logistics infrastructure, the clear and stable political, legislative and administrative environment, and the entrepreneurial culture” (EY, 2013a, p. 21). Less attractive are the factors “mainly related to costs (e.g. labour costs, corporate income tax, grants and incentives) and rules and regulations (e.g. flexibility and labour laws)” (EY, 2013a, p. 22). Notably is that in 2011, 45 percent of the decision-makers of international companies, noted that high wages in the Netherlands are less attractive, but were mentioned less (27 percent) in 2012. Many international companies use the Netherlands as their European transportation hub and the Netherlands has a strong financial center. Competitors of the Netherlands as host countries for FDI, are according to the attractiveness survey, Germany and Belgium (EY, 2013a). KPMG (2013) also stated, in their booklet prepared by KPMG specialists to help business executives with the decision about a presence in the Netherlands, that the Netherlands is attractive as a host location
for investments and described the regulatory, tax and legal environment of the Netherlands. According to KPMG (2013, p. 8) “The Netherlands offers a stable economy, a reliable and equitable tax regime, a sophisticated, internationally oriented infrastructure, and a society and culture of openness”. Furthermore, the Netherlands is known for “its stable industrial relations, a productive and well-educated workforce and excellent IT connectivity” (KPMG, 2013, p. 8).
Besides international companies that have real substance in the Netherlands, there are also companies without substance that make use of the Dutch tax regulations (Van Dijk et al., 2006). The special purpose entities (SPEs) in Dutch ‘brievenbusmaatschappijen’, are owned by foreign owners and used to receive money from abroad and paying money to foreign countries (SEO Economic Research, 2013). These companies make use of the favorable tax legislation which the Dutch government has designed to extract headquarters of multinational companies to the Netherlands (Van Dijk et al., 2006). The government has set up this legislation to “generate employment, stimulate technology diffusion and it leads to greater demand for products and services of domestic companies” (Van Dijk et al., 2006, p. 16). However, the Dutch tax system and tax treaties offers also “opportunities for international companies to avoid double taxation through SPEs, and/ or reduce their global tax payments or even minimize the global tax payments” (SEO Economic Research, 2013, p. i).
2.2. Tax avoidance
Tax treaties have emerged as a response to the globalization of businesses (OECD, 2013). Globalization led to increased trade and FDI in many countries. It brought “growth,
created jobs, fostered innovation, and has lifted millions out of poverty” (OECD, 2013, p. 7). It shifted companies “country-specific operating models to global models based on matrix management organizations and integrated supply chains that centralise several functions at a regional or global level” (OECD, 2013, p.7), which initiated international interaction of tax systems (OECD, 2013). Since countries initially worked with their own tax instruments for international payments and investment flows, both the host country and the home country levied taxes (Hamada, 1966). This created the undesirable situation of double taxation (Rixen, 2010). After agreement on avoiding double taxation, the situation reversed to single taxation. However, “international investment is free to move across borders, tax payers can shop between jurisdictions for the lowest taxes” (Rixen, 2010, p. 201). Therefore the ‘race to bottom’ in taxes arose, “undercutting each other’s taxes to attract foreign capital” (Rixen, 2010, p.11). Janeba (1995, p. 322) is critical about tax competition, “tax competition leads to an inefficient allocation of the world’s capital stock, which raises the issue of cooperation”. In order to prevent double taxation and inhibit the race to the bottom, tax treaties between countries were introduced (Janeba, 1995).
The Dutch tax system provides opportunities for international companies, via SPEs, to avoid double taxation and to reduce or minimize their global tax payments (SEO Economic Research, 2013). According to SEO Economic Research (2013) this is called international tax planning. “Tax planning is legal; companies are free to organize their activities with this purpose. By contrast, tax evasion, is illegal” (SEO Economic Research, 2013, p. ii). Between tax evasion and tax planning there is tax avoidance
(Figure 1). Tax avoidance is legal, but there is much debate about “whether that is in line with the objective of the law” (SEO Economic Research, 2013, p. ii).
Figure 1. Evaluation framework fiscal motives
Illegal Legal
I. Tax evasion II. Tax avoidance III. Fiscal planning
Unacceptable Acceptable
Source: SEO Economic Research, based on Finnerty et al. (2007).
The space between tax evasion and tax planning, is often referred to as the large grey area of tax avoidance (Picciotto, 2004). Tax avoidance is “the attempt to do so by lawful means” in contrast to tax evasion, which is illegal (Picciotto, 2004, p.83). However it is not always easy to determine whether the avoidance is valid or unlawful, because the intent to establish evasion is not always clear (Picciotto, 2004). According to Picciotto (2004, p.93) the validity of tax avoidance depends on 3 factors; “(1) the existence of a valid economic or business purpose; (2) the compliance with both the letter and, broadly speaking, the spirit of the law; and (3) openness, or at least lack of excessive secrecy”. If the transactions which leads to valid tax avoidance are considered undesirable by the authorities, the authorities can modify the rules by making use of anti-avoidance measures. International tax anti-avoidance is possible, because there are different rules of tax regulations in the countries where the international companies operates. “Both the opportunity and the motive for avoidance are minimised to the extent that regulation can rely on the same legal rule applied universally” (Picciotto, 2004, p. 84).
The Netherlands always has been a trading nation, it is therefore not surprising that the Dutch government “has actively worked to conclude double tax treaties with the
countries in which Dutch multinationals have been active” (Van Dijk et al., 2006). According to KPMG (2013) the Netherlands has still an interesting tax system for international tax planning. KPMG (2013, p. 11) stated that “the Dutch tax system creates an attractive tax climate, which made the Netherlands a prime location for US and Asia-based multinationals to establish their European holding companies”. The Netherlands in comparison with other European countries, doesn’t have low nominal tax rates (SEO Economic Research, 2013). But, the participation exemption, the absence of withholding tax on interest, royalties and branch profits, the flexible approach to losses, the special tax regime for expatriates and the possibility to enter into binding agreements in advance (rulings) with the tax authority are the main features of the Dutch tax system (KPMG, 2013). Furthermore, the Netherlands has a long experience in tax planning structures and high qualitative tax advisors, lawyers and accountants (Van Dijk et al., 2006).
2.3 Debate on tax avoidance
The debate on tax avoidance is according to SEO Economic Research (2013, p. i) “predominantly about morality and less about legality”, and conducted worldwide. The ethical discussion of tax avoidance, can according to Preuss (2012b) be evaluated with the use of two opposite views about Corporate Social Responsibility (CSR) and tax avoidance. “Friedman’s (1973) position on CSR: any company is free to arrange its tax affairs as it chooses as long as it acts within the law” and the opposite position “business exists to serve a range of stakeholders, not just shareholders (Carroll 1979; Freeman, 1984)” (Preuss, 2012b, p. 112). According to Preuss (2012b) finance professionals of companies adjust to the first view, which allow “tax professionals to rationalise the use of
aggressive tax avoidance strategies, if not perceiving it as their duty to employ these to the fullest extent compatible with the letter of the law”(Preuss, 2012a, p.4).
Christensen and Murphy (2004) endorsed this view, companies make use of tax avoidance to meet the expectations of shareholders. This correspondents with their CSR reporting (Jenkins, 2005). Jenkins (2005, p. 528) argued that poverty is one of the points that companies describe in their CSR policies, however practices like “transfer pricing, tax avoidance and abuse of market power are not part of the CSR mainstream”. Christensen and Murphy (2004, p. 39) warned the companies that “it is not possible to be ethical in one area of business conduct and to act otherwise in another area, and companies that function in this way reveal a major disconnect in their core organizational values”. Moreover, shareholders are much better served when companies look at the long-term sustainability of their firm (Christensen & Murphy, 2004).
The stakeholder view suggests that stakeholders are disadvantaged by companies making use of tax avoidance (Sikka & Hampton, 2003). The public discussion described by SEO Economic Research (2013, p. 6) is also about the impact on stakeholders, tax avoidance can lead to “erosion of taxation in developing countries, and can possibly lead to an unfair distribution of burdens” (SEO Economic Research, 2013, p. 6). Weyzig and Van Dijk (2009) investigated, by using a case study of the Netherlands, the negative relation between tax avoidance structures of multinational corporations and development policies. This research concluded that the “negative effects of Dutch tax policy for developing countries are potentially very large”, while the positive effects of investment in developing countries are relatively small (Weyzig & Van Dijk, 2009, p. 1273). Weyzig and Van Dijk (2009), mentioned that the Netherlands in their research served as an
example for the international tax avoidance problem. If the Netherlands would change the rules on tax avoidance, international companies would use the rules in countries such as Luxembourg and Switzerland. Therefore, the rules should be adjusted in all countries, it is “desirable that initiatives promoting policy coherence for development pay more attention on tax issues” (Weyzig & Van Dijk, 2009, p. 1274).
2.4 Initiatives against tax avoidance
The Organisation for Economic Co-operation and Development (OECD) is a forum of 34 member countries, working together to address the economic, social and environmental challenges of globalisation (OECD, 2013). The OECD has made the Base Erosion and Profit Shifting (BEPS) report in response to a call from the G20 Financial Ministers (SEO Economic Research, 2013), to “provide countries with domestic and international instruments that will better align rights to tax with economic activity” (OECD, 2013, p. 11). The BEPS report argued that new international standards are needed to better align the tax rules of different countries, realignment of taxations is needed to match them with the intent of the agreements between countries and argues that the actions proposed in the report only can be successfully implemented when companies are transparent about their tax planning strategies and “mechanisms should be implemented to provide businesses with the certainty and predictability they need to make investment decisions” (OECD, 2014, p.14). The BEPS report indicated 15 specific actions, these actions are elaborated in Table 1.
Table 1
Summary of the BEPS Action Plan
Action
1 Address the tax challenges of the digital economy
2 Neutralize the effects of the hybrid mismatch arrangements 3 Strengthen controlled foreign company rules
4 Limit base erosion via interest deductions and other financial payments 5
Counter harmful tax practices more effectively, taking into account transparency and substance
6 Prevent treaty abuse
7 Prevent the artificial avoidance of permanent establishment 8
Assure that transfer pricing outcomes are in line with value creation: intangibles
9
Assure that transfer pricing outcomes are in line with value creation: risk and capital
10
Assure that transfer pricing outcomes are in line with value creation: other high-risk transactions
11
Establish methodologies to collect and analyze data on BEPS and the actions to address it
12 Require taxpayers to disclose their aggressive tax planning arrangements 13 Re-examine transfer pricing documentation
14 Make dispute resolution mechanisms more effective 15 Develop as multilateral instrument
Note: Adapted from "Action Plan on Base Erosion and Profit Shifting", by OECD, 2013, OECD Publishing, p. 29-34.
In accordance with the BEPS report, EY (2013b, p.1) stated that “the recent debate around ‘fair tax’ has raised the bar in terms of the expectations of the level of tax information provided by multinational companies”. Despite the fact that companies are concerned to disclose this information to their stakeholders, EY recommended companies to voluntary disclose this information. According to EY (2013b, p. 1) it is clear that “organizations cannot ignore the call for greater tax transparency and need to consider the role and extent of greater transparency about the taxes they pay as part of stakeholder management if they have not already done so”. PWC (2013) is like EY a supporter of
well-considered transparency around tax reporting. To inform stakeholders about the tax payments of the business, companies can make use of different country-by-country reporting initiatives. PWC (2013) looked at four reporting frameworks: the Extractive Industries Transparency Initiative (EITI), the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), EU Accounting and Transparency Directives, and EU Capital Requirements Directive IV (CRD IV). The comparison of these initiatives made clear that the information which is included in the reports varied from each other (PWC, 2013). For companies which want to make effectively use of country-by-country reporting it is important to understand that the report needs to provide information (not just data), that the company has to know in advance who the reader is and what the purpose is of the report (PWC, 2013).
2.5 Role of the tax advisor
Several studies mentioned the role of tax advisors (Tan, 1999; Piciotto, 2004; Grotenhuis, 2005). Tan (1999) showed that tax advisors play an important role in taxpayer’s compliance behavior. The study showed that most companies “tend to agree with the advice, conservative or aggressive, given by their practitioner” (Tan, 1999, p.445). Despite that the results of the survey among the company’s showed that companies would like to receive conservative tax advices, the companies trusted the advice of the tax advisors and didn’t draw this into question, because the tax advisors are seen as experts with the tax law (Tan, 1999). Piciotto (2004) showed that international corporations and their tax advisors had a crucial role in the development of the
international tax system. “International tax planning emerged within a process of bargaining and negotiation between specialist consultants and the tax officials of the main capitalist countries” (Piciotto, 2004, p. 77). Grotenhuis (2005) investigated whether tax advisors acts in violation of their professional ethics or in the clients’ best interest, when they advise aggressively. According to Grotenhuis (2005), the tax advisors and the tax authority in the Netherlands are agreed upon the impermissibility of tax evasion. However, on tax avoidance they have different opinions. Whereby the tax advisor holds on to the principle of legality, the customer pays to be advised on the basis of the law. While the tax authority expects the tax advisor to advice on the intention of the legislature (Grotenhuis, 2005).
The role of the tax advisor is, in contrast to the role of top executives of companies in relation to tax planning, not yet investigated (Dyreng, Hanlon & Maydew, 2010; Armstrong, Blouin and Larcker, 2012). The reason that no research has been done, may be that the tax advisors by law have an independent existence (Grotenhuis, 2005). The tax advisor can give assistances to the company, but cannot be addressed on aggressive tax planning. This study develops the research into ‘the role of the tax advisor in attracting international companies to the Netherlands’, by investigating whether State Secretary Weekers (2013) is right about the role of the tax advisor by; (1) contributing to the public debate on tax avoidance, (2) to be nuanced in giving criticism when international rules be tightened, and (3) by finding a balance in the daily advisory, to protect the profession of the tax advisor and the image of the Netherlands as an attractive country for FDI.
3. Methods
This study is designed to investigate the role of the tax advisor in attracting international companies to the Netherlands. The researcher selected 16 tax advisors from multiple tax advisory firms. The tax advisors participated in a semi-structured interview. The questions that were asked, are based on the role of the tax advisor as described in the speech from former State Secretary Weekers (2013). The present researcher therefore designed the following interview themes: (1) the attractiveness of the Netherlands; (2) the tax advantages of the Netherlands in practice; (3) the debate on tax avoidance; (4) the initiatives to counter tax avoidance; and (5) the role of the tax advisor.
The sample contains of 16 tax advisors, all working in a tax advisory firm situated in the Netherlands. However, there should be emphasized that the tax advisors all speak on their personal note. All tax advisors are native Dutch speakers and 94 percent (N=15) of the tax advisors is male. 81 percent (N=13) of the tax advisors who participated in the study, works as a Partner. The other participants work as a Director, Senior-manager and Assistant-manager. The sample is shown in alphabetical order in Table 2 and unrecognizable quoted in the result section. The table also contains the companies where the tax advisors work for, and makes a distinction between tax advisors working in a Global Professional Network (GPN) and tax advisors working in a firm without a GPN (Brock & Powell, 2005). According to Brock and Powell (2005, p.452) a GPN is “characterized by global reach; a significant reliance on formal networks and alliances; governance and management structures closely resembling those of business
corporations; and the development of multidisciplinary professional practice”. In this study Deloitte, EY, Grant Thornton, KPMG and PWC meet the characteristics of a GPN.
Table 2
The organizations of tax advisors and their functions.
Name Function Company GPN
Judith van den Akker-Kars Assistant manager PWC x Onno Backx Partner Grant Thornton x Stephen Brunner Partner Deloitte x Mark van Casteren Partner Loyens & Loeff N.V.
Robert Citgez Partner IFAA
Hendrik-Jan van Duijn Partner DTS Duijn's Tax Solutions
Jurgen van Hattum Partner Grant Thornton x Cees Jorissen Partner Deloitte x Nico Koppel Partner Koppel Belastingadvies
Ton Krol Partner Blue Clue Tax Solutions
Jeroen Kuppens Director KPMG x Jeroen Mijlof Partner MFFA Tax Advice
Martijn Munniksma Senior Manager EY x Wiecher Munting Partner Ottenspeer Haasnoot & Partners
Silvain Niekel Partner EY x
Boian Popov Partner IFAA
The tax advisors are approached in different ways to cooperate in the research; 50 percent (N=8) is reached through the network of the researcher, after posting an appeal on social media; 44 percent (N=7) is approached directly by email or phone, after searching for ‘international tax advisors’ on the Internet; and 6 percent (N=1) is reached via a previous respondent.
The data for this qualitative research are obtained through interviews (Gephart, 2004). The limitation of qualitative research is, that its “highly descriptive and often recounts who said what to whom, when and why” (Gephart, 2004). However, it can
provide the researcher with descriptive information. Gephart (2004, p. 458) defines interviews as “situated face-to-face interactions which researchers typically pose that respondents answer”. The respondents in this study, are tax advisors of the various offices. The choice is made for own data, collected by conducting interviews with tax advisors, because they can speak about their experience. They can give “direct access to experience” of the role from the tax advisor in attracting international companies to the Netherlands (Silverman, 2000, p. 35).
The interview style is semi-structured. Semi-structured interviews can “provide detail, depth, and an insider’s perspective while at the same time allowing hypothesis testing and the quantitative analysis of interview responses” (Leech, 2002, p. 665). Prior to the interviews, an interview protocol was drawn. The questions in the interview are in balance between open-, closed questions and prompts. Prompts are questions which go deeper into the previous question and ensure that the respondent give more detailed answers (Leech, 2002). The intention was to hold at least twelve interviews, finally there were sixteen interviews held. The interviews took up to one hour each and were conducted face to face. Upfront there was asked for permission to record the interviews. The interviews were held in Dutch, because all tax advisors are native Dutch speakers. The interviews were conducted and analysed in Dutch, but the results are written and presented in English.
To set the respondents convenient, the interviews started with some personal questions and explaining the project without revealing the ultimate goal (Leech, 2002). Thereafter questions fitting the themes, presented in Table 3 were discussed. The detailed questionnaire is provided in appendix 1.
Table 3
Interview themes
Theme Key points Objective
1. Attractiveness of the Netherlands
Why do international companies like to invest in the Netherlands? How can the tax position of the Netherlands be described in comparison to other European countries?
To find out why foreign investors choose for the Netherlands.
2. Tax advantages of the Netherlands in practice
What is the opinion about companies that invest in the Netherlands for tax reasons? Do the offices advertise with the tax benefits of the Netherlands?
To discover how the tax advisors in practice cope with the tax advantages of the Netherlands.
3. Debate on tax avoidance
What determines the boundary between an aggressive tax advice and a corporate socially responsible advice?
To determine how tax advisors stand in the debate on tax avoidance.
4. Initiatives to counter tax avoidance
What is the opinion on the proposals of the OECD? What is the opinion on country-by-country reporting?
To find out how tax advisors think about the suggested initiatives to counter tax avoidance.
5. Role of the tax advisor
What role do tax advisors play in attracting international companies to the Netherlands?
To gain insight into how tax advisors think about their own role in attracting international companies to the Netherlands.
The interviews were recorded with the permission of the respondents. These recordings have been elaborated into interviews transcripts. After the transcription, the interview data were analysed, selected and transformed to theme nodes (Miles & Huberman, 1984). The themes used are the same as presented in Table 3. The themes and categorisation of the themes is explained further below. Use is made of frequency as the basis of the analysis to represent the number of tax advisors mentioning (sub)themes.
The themes are based on the speech of State secretary Weekers (2013). Weekers (2013) argued that the Netherlands can be attractive for foreign investors. To examine whether the tax advisors agree with the Dutch State Secretary of Finance, they were asked why international companies invest in the Netherlands. Hereby the tax advisors were asked, to elaborate on the factors that play a role in the choice for the Netherlands,
so that the location choice factors mentioned by the tax advisor can be compared with those in the literature. Since the Netherlands is part of Europe, tax advisors were also asked about the fiscal position of the Netherlands in comparison to other European countries, it was requested to further explain the position of the Netherlands, but also to explain the positions of the other countries singly in relation to the Netherlands.
The second theme is the ‘Tax advantages of the Netherlands in practice’. Weekers (2013) does in his speech an appeal to the tax advisors. One part of this appeal is “to find a balance in the daily advisory” (Weekers, 2013). In order to determine how tax advisors cope with the tax advantages of Netherlands, the tax advisors were asked about their opinion ‘about companies that invest in the Netherlands for tax reasons’. The answers to this question are assigned to positive and negative reactions, to be able to draw conclusions from this. The other question was ‘if the offices they work for, advertise with the tax benefits of the Netherlands’. The answers to this question could be divided into answers from tax advisors working in a GPN and tax advisors working in a firm without a GPN, to draw conclusions from this.
The other appeal from Weekers (2013) was, the appeal to “contribute on the public debate on tax avoidance”. To determine how tax advisors stand in this debate, the advisors were asked ‘how they determine the boundary between an aggressive tax advice and a social responsible advice’. The answers are categorized in the boundaries; (1) law; (2) own conscience; (3) stakeholders; and (4) business rules.
The final appeal of Weekers (2013) is “the request to be nuanced in giving criticism when international rules be tightened”. To explore how tax advisors think about the revisions of international tax rules, they were asked to give their opinion about the
BEPS initiative proposed by the OECD and country-by-country reporting (added after the sixth interview). These views are divided into positive and negative opinions, in order to compare these with the opinions in the existing literature.
Finally, the tax advisors were asked how they see ‘their role’ in attracting international companies to the Netherlands. The answers were distinguished between the type of advice and the size of the opinion. Further there was a distinction between made between answers from tax advisors working in a GPN and tax advisors working in a firm without a GPN, to draw conclusions from this.
4. Results
This section presents the results of the semi-structured interviews with the tax advisors. The results are expressed by theme. Starting with the attractiveness of the Netherlands, than the tax advantages of the Netherlands in practice, the debate on tax avoidance and the opinion of the tax advisors about initiatives to counter tax avoidance. Followed by how the tax advisors describe their own role
4.1. Attractiveness of the Netherlands
To explore why the Netherlands is attractive for foreign companies, the tax advisors were asked about the factors that make the Netherlands attractive and about the position of the Netherlands compared to other European countries. The tax advisors argued that there are several factors influencing the attractiveness of Netherlands. In general the factors that are most frequently (19 to 75 percent) cited are: infrastructure, knowledge/ education, advance pricing agreement (APA), tax conventions, participation exemption, centrally located, politics/law, tax on interest and royalties, trading country, cost of living, trade conventions, value added tax (VAT) and Europe. These factors are elaborated in Table 4.
Table 4
Favourable location factors of the Netherlands
Factor Frequency of
respondents (percent)
Examples and sample comments
Infrastructure 12 (75) The infrastructure on the road, water, in the air and internet is good. 'The Port of Rotterdam, Schiphol, and a good transit from Germany and Belgium' (Respondent 3, personal communication, November 22, 2013). The trust and banking sector is geared up. 'In the Netherlands, they are used to that type of transactions and that kind of amounts of money, it all goes smoothly' (Respondent 12, personal communication, December 6, 2013).
Knowledge/ education
12 (75) The Dutch population is generally well educated. ´Their studies are decent, that eliminates concerns by customers´ (Respondent 1, personal communication, November 19, 2013). And ´the people speak their languages´ (Respondent 12, personal communication, December 6, 2013).
Advance pricing agreement (APA)
10 (62) It’s possible to make arrangements with the Dutch tax authorities. ´You can negotiate with the Dutch tax inspector. You can ask such advanced pricing agreement´ (Respondent 3, personal communication, November 22, 2013).
Tax conventions
7 (44) ´If you look at the tax conventions, the Netherlands has more than 90 treaties drawn with countries. Which reduces withholding tax and avoids double taxation´ (Respondent 11, personal communication, December 6, 2013).
Participation exemption
7 (44) The participation exemption is 'the most important instrument of the Dutch tax system' (Respondent 16, personal communication, December 20, 2013). 'The gains are not taxed twice' (Respondent 2, personal communication, November 22, 2013).
Centrally located
6 (38) The Netherlands has a central location. 'For many companies the Netherlands is the ideal location in order to start in Europe, for their distribution and sales, and for their European headquarter' (Respondent 9, personal communication, December 3, 2013).
Politics/ law 6 (38) ‘The regulations and legislation are a stable factor' (Respondent 7, personal communication, November 29, 2013) in the Netherlands. Therefore it’s a 'reliable country for trade' (Respondent 8, personal communication, December 2, 2013).
Tax on interest and royalties
5 (31) The Netherlands does not charge tax on interest and royalties. ´For us that is quite normal, but abroad in 9 of the 10 countries tax is on those payments´ (Respondent 11, personal communication, December 6, 2013).
Trading country
5 (31) The Netherlands has always been a trading nation. ´We are very international oriented, because we have a small domestic economy´ (Respondent 10, personal communication, December 5, 2013). Cost of living 4 (25) The cost to settle in the Netherlands are lower than in comparison with
other countries. ´If you want to establish your office in London, that is a factor of two higher than in Amsterdam, maybe more. Luxembourg also´ (Respondent 12, personal communication, December 6, 2013). Trade
conventions
4 (25) The Netherlands has trade conventions with other countries. 'The Netherlands has an important role in protecting the property of
companies. Which means that companies that invest from the Netherlands, their property is as respected abroad' (Respondent 5, personal communication, November 26, 2013).
Value added tax (VAT)
3 (19) The Netherlands has good arrangements relating to VAT. 'If you ask for a tax return and you can claim VAT, you get it back' (Respondent 7, personal communication, November 29, 2013).
Europe 3 (19) The Netherlands is part of the European Union (EU). This has the advantage that 'companies in the Netherlands can make use of EU directives' (Respondent 11, personal communication, December 6, 2013).
Notes. N=16. Frequency is number of tax advisors who mentioned the factor. Percentages reflect percentage of the sample.
The conventions are called very often (N=10). However, according to Respondent 5 the distinction between international tax conventions and bilateral investment conventions has to be made because they serve different purposes (personal communication, November 26, 2013). The factors mentioned less frequently (6 to 13 percent), are; the market, tested laws, services, diversity of people, incentives to invest, protection of intellectual property (IP) and remarkably the preference of the CEO. The question does not distinguish between FDI and investments without substance, in order to lead tax advisors self-appoint this distinction. Such a distinction has to be made according to a number (N=7) of tax advisors. For the investments without substance, the following factors are mentioned in particular; the financial infrastructure (trust and banking sector), advance pricing agreement, tax conventions, participation exemption and tax on interest and royalties. For these investments, ‘tax is playing an important role’ (Respondent 12, personal communication, December 6, 2013). For FDI, investing in a project in the Netherlands, tax issues also play along to invest. However, ‘ultimately just business wise it should be a good deal’ (Respondent 14, personal communication, December 19, 2013).
The fiscal position of the Netherlands in comparison to other European countries is, according to the tax advisors, in the range between excellent and less than it used to
be. ‘The Netherlands has all the ingredients to attract businesses, therefore the Netherlands should really be on the top spot’ (Respondent 3, personal communication, November 22, 2013). The position of the Netherlands in respect to previous years has deteriorated. According to Respondent 6, many fiscal constraints were introduced during the last decade 'the participation exemption became more difficult, interest deduction became harder and recently additional conditions are introduced with regard to rulings’ (personal communication, November 29, 2013). There are countries that have surpassed the Netherlands. But for the future, the Netherlands has an advantage because it is expected that there will be more focus on the functional basis (substance) for taxation and the agreements made with the tax authorities. According to Respondent 2 this is beneficial for the Netherlands because it’s ‘a service oriented country and a producing country’ (personal communication, November 22, 2013).
By looking at the competitors, Respondent 14 states that ´it’s possible to point to a few competitors for any type of investment´ (personal communication, December 19, 2013). In general the country’s most frequently (19 to 75 percent) mentioned in fiscal comparison to the Netherlands are: Luxembourg, Ireland, United Kingdom, Switzerland, Belgium and Malta. The countries most competitive, according to the tax advisors are Luxembourg, Ireland and Switzerland. The UK is often referred to because of the aggressive advertising of the fiscal environment in the UK. Malta is compared with Cyprus and perceived as too aggressive. The countries are elaborated in Table 5. Conspicuous is that also Hungary (N=1) and Denmark (N=1) are mentioned. However in this discussion, they can be seen as outsiders.
Table 5
Countries most frequently named as fiscal competitors of the Netherlands
Country Frequency
of
respondents (percent)
Examples and sample comments
Luxembourg 15 (94) Luxembourg is a major competitor for the Netherlands and especially attractive for the structures, and rulings are easy to agree on. Luxembourg is 'not much affected by spillover effects of prospective measures to the normal Luxembourg business, because that's barely there' (Respondent 12, personal communication, December 6, 2013). A drawback is that
Luxembourg is a relatively small country and therefore cannot handle so much work, is not known as a place to live and only specialized in the financial sector. Luxembourg has 'quite a lot of knowledge in this field, but so little knowledge in general in comparison to the Netherlands'
(Respondent 3, personal communication, November 22, 2013).
Ireland 13 (81) Ireland is competitive on structures, it has a lower tax rate and is appealing for IP. The disadvantage of Ireland is the location relative to the rest of Europe. 'Ireland is still surrounded by the sea' (Respondent 3, personal communication, November 22, 2013).
United Kingdom
9 (56) The UK presents itself as a strong competitor and would like to have a ‘competitive tax system’ (Respondent 14, personal communication, December 19, 2013). The UK is ‘copying the participation exemption, abolishing the withholding tax to America and abolishing all the
withholding tax’ (Respondent 16, personal communication, December 20, 2013). In addition, the UK has an advantage with the language. ‘Of course the UK has a huge attraction to Anglo-Saxon world’ (Respondent 6, personal communication, November 29, 2013). But the UK is located on the other side of the North Sea. ‘So for the gateway function, the UK is not suitable’ (Respondent 9, personal communication, December 3, 2013). London is expensive to establish an office and the tax regulations changes regularly, which creates uncertainty for businesses.
Switzerland 7 (44) Switzerland has lower tax rates than the Netherlands. ´They have favorable tax regimes which we really cannot match´ (Respondent 13, personal communication, December 10, 2013). But the market is small and the standard of living is higher. ‘It's a bit better, but it is significantly more expensive to settle down’ (Respondent 10, personal communication, December 5, 2013).
Belgium 6 (38) Belgium is similar to the location and the infrastructure with the port of Antwerp. ‘Also in terms of tax climate. Everything the Netherlands has copies Belgium’ (Respondent 3, personal communication, November 22, 2013). Belgium also has a similar treaty network.
Malta 3 (19) Malta is fiscally considered one of the competitors, the tax rate is a bit lower. But Malta 'suffers from Cyprus' (Respondent 2, personal
communication, November 22, 2013). ‘Malta pushes the boundaries with favorable regulations. Until such an extent that they are blacklisted, in contrast to the Netherlands’ (Respondent 11, personal communication, December 6, 2013).
Notes. N=16. Frequency is number of tax advisors who mentioned the country. Percentages reflect percentage of the sample.
4.2. Tax advantages of the Netherlands in practice
More than half of the tax advisors (N=9) gave their opinion about companies investing in the Netherlands for tax reasons. Only two of them responded negatively. 44 percent of all respondents (N=7) are pleased that companies come for tax reasons to the Netherlands. Tax advisors speak positively about companies that invest in the Netherlands for tax benefits, because tax can be seen as a cost of doing business. ´Ultimately, the advantage is that the company saves money to reinvest, or to return money to the shareholders´ (Respondent 10, personal communication, December 5, 2013). Tax advisors therefore understand that companies want to save money on tax payments, within the framework of the law. Companies ´do not pay taxes because they want to, they pay tax because it should´ (Respondent 6, personal communication, November 29, 2013). Respondent 11 argues that the countries in Europe consciously agreed to compete with each other and therefore ‘you always have countries that are going to be better than other countries, through bringing down for example corporate income tax burden’ (personal communication, December 6, 2013). When other countries are negative towards this, the countries should handle this in consultation. Another reason why tax advisors are positive, is that there is ´a whole section in the financial sector that deals with tax advice to multinationals´ (Respondent 10, personal communication, December 5, 2013). Therefore it contributes to jobs and income for the Netherlands.
When the tax advisors were asked whether they advertise with the tax benefits for foreign companies, they indicate that they do not advertise, but that they try to explain the benefits of the Netherlands. For the tax advisors working in firms with a GPN (N=6), the international network of offices is very important. According to Respondent 6 in a global
organization it does not matter ‘whether the client settles it’s headquarter in the Netherlands, Germany, Belgium or France. It's about what works best for that customer’ (personal communication, November 29, 2013). But towards the partners in their network, who work in other countries, they do give information and promote the Netherlands. Respondent 14 agrees with this and states that ‘the largest firms are already well established. But the smaller firms are only known in the Netherlands and perhaps in the Benelux, but outside they need to draw attention to their self’ (personal communication, December 19, 2013). Tax advisors working in smaller firms, therefore work much more closely with parties like the Netherlands Foreign Investment Agency (NFIA) and embassies, they are asked to give presentations abroad about the possibilities of the Netherlands (N=6), they put international tax news on their websites and make use of social media.
4.3. Debate on tax avoidance
All the tax advisors (N=16) indicate that they understand the social resistance against companies having a low effective tax rate, because there is a lot of attention for this issue. However, there should be noted that the discussion is particularly relevant for companies that make and sell consumer products, ‘because they can be punished by the end-user’ (Respondent 16, personal communication, December 20, 2013). To make a differentiation between an aggressive tax advice and a corporate socially responsible advice, 81 percent of the tax advisors (N=13) mentions the law. The tax advisors also mention the media and the public opinion (N=9), but do not see this as a boundary. They argue that the media are giving a distorted view and that only the authorities would be
allowed to determine whether a company is paying insufficient tax amounts. The public opinion is stirred up by the media, examples like Starbucks, Google, Apple and Amazon are often referred to. ‘It is noticeable that all the companies that are in the news are US companies. Not coincidentally, the US legislation is constituted in a way that this type of structures are possible’ (Respondent 6, personal communication, November 29, 2013). International companies are because of this media attention more concerned about their reputation. But tax advisors state that not the media but the law should determine who pays what. ‘For me, it really should be based on the legal rules there we have determined in how we want to distribute the taxation. And if we do it that way, and everyone sticks to it, then there is no problem’ (Respondent 14, personal communication, December 19, 2013). ‘Journalists are obviously not specialists and of course newspapers need to be sold, therefore you get a certain kind of reporting. And I think the audience wants to hear that’ (Respondent 13, personal communication, December 10, 2013). Further, the boundaries own conscience, the expectations of the stakeholders and business rules are mentioned. All the boundaries are elaborated in Table 6.
Table 6
Boundaries of aggressive tax advice
Boundary Frequency of
respondents (percent)
Examples and sample comments
Law 13 (81) The legal framework is the hard limit in the execution of the work of tax advisors. ‘We advise not contrary to the law, so in my personal view, any advice that we put on the table is a socially responsible advice because it is in line with the opportunities that the authority gave us as at that time’ (Respondent 16, personal communication, November 29 , 2013). Because the law can be interpreted in different ways, the advice has as an 'ultimate threshold that it should advocated. If it is to advocate, you can have differences in opinion, but you cannot face fines' (Respondent 15, personal communication, December 6, 2013).
Own conscience 4 (25) The tax consultant also has its own conscience. ‘I think you have your own conscience as tax advisor’ (Respondent 1, personal communication, November 19, 2013). ‘Every morning when I shave myself, I ask myself if I am shaving an honest man. And every morning, I say confidently yes’ (Respondent 4, personal communication, December 19, 2013).
Stakeholders 2 (13) Companies have to deal with the needs of different stakeholders. ‘For example, you see that nongovernmental organizations like Unicef, put companies under pressure because they say we want to make you accountable for your tax policy. It should not be too aggressive, everyone needs to pay his fair share. And on the other hand, you have the shareholders that force you to make us of the bottom line, so they get more dividends’ (Respondent 15, personal communication, December 6, 2013).
Business rules 1 (6) Within the tax office there are rules to indicate the boundaries. 'We have an internal opinion committee, which says these products are products that we can actually implement and others are bad for our reputation' (Respondent 1, personal communication, November 19, 2013).
N=16. Frequency is number of tax advisors who mentioned the boundary. Percentages reflect percentage of the sample.
4.4. Initiatives against tax avoidance
One of the most discussed reports in this field is the BEPS report by the OECD. All the respondents (N=16) gave their opinion about the OECD initiative. They are all quite positive about the initiative. Respondent 14 states that he thinks that ‘it’s good that there is more international attention, to prevent that companies evade paying taxes’ (personal
communication, December 19, 2013). Tackling tax evasion and avoidance is only possible if the countries work together, everyone adapts a bit and they come together to a level-playing field. ‘The problem arises mainly because different countries have different laws, which do not fit together’ (Respondent 6, personal communication, November 29, 2013). In addition to the cooperation, the OECD also initiates ‘a structured approach to bring in line the actual activities of the company with the country were companies pay taxes’ (Respondent 10, personal communication, December 5, 2013). This is not new. In 1995, the OECD transfer pricing guidelines already expected that ‘in the country where the risk is, the risk should be managed’ (Respondent 13, personal communication, December 10, 2013). This initiative could turn out in favour of the Netherlands, because ‘we are in a position to give many companies much substance’ (Respondent 2, personal communication, November 22, 2013). Tax advisors are also not against the initiative, because it will take some time before it is introduced. And Respondent 16 states that ‘when we know the transfer pricing methodologies of the future, he can take them to work with’ (personal communication, December 20, 2013).
However, most of the tax advisors (N=10) are not only positive, they are also critical about the implementation of the initiatives. They expect that it will be difficult to create a level playing field. The plan is also labelled as too ambitious, ‘politically they will never get all fifteen points’ (Respondent 6, personal communication, November 29, 2013). But the fact that they came with this initiative has led, according to Respondent 10, to other initiatives related to transparency and information exchange (personal communication, December 5, 2013). Moreover, a point of criticism is that the OECD can only give guidelines, not force it. There is also suggested that the tax authorities should
maintain the existing rules better, ‘they have the instruments and there are many rules with which they can raise their taxes. But if they do not use them, then they will not get the tax payments’ (Respondent 3, personal communication, November 22, 2013).
The other initiative is country-by-country reporting, 12 respondents gave their opinion about this initiative. Half of them (N=6) indicate that initiatives regarding country-by-country reporting are very unclear. There is ‘still much debate about how it should be structured’ (Respondent 6, personal communication, November 29, 2013). But despite the fact that the initiative is not clear, most of the respondents (N=10) are positive about the initiative. Because it provides transparency about where the companies pay their taxes. There are however different country-by-country reporting initiatives. Respondent 12 states that he better understands the usefulness of the reporting for the tax authorities, because they better understand the tax rules (personal communication, December 6, 2013). Points of critics are that it gives a limited picture, ‘you should have to look more macroeconomic to the conclusions (Respondent 7, personal communication, November 29, 2013); ‘it provides an additional administrative burden’ (Respondent 14, personal communication, December 19, 2013); and with the reporting in the annual report ‘the media will try to determine how much tax you will pay’ (Respondent 6, personal communication, November 29, 2013). The two respondents who are negative about the initiative, also argue that country-by-country reporting does not give enough information to form an opinion about the company’s tax payments.
4.5. Role of the tax advisor
Tax advisors respond differently on how they see their role in attracting international companies to the Netherlands. The tax advisors were asked what kind of role the tax advisor plays and how big that role is. Most of the tax advisors (N=15) gave their opinion about the role of the tax advisor, there is a difference visible between the advisors working at a GPN firm or working in firms without GPN. The tax advisors working in a network organization, (N=7) gave their opinion about the role of the tax advisor in attracting international firms to the Netherlands. 43 percent of these tax advisors (N= 3) emphasize that they promote the Netherlands. Because the tax advisor ‘always has been very marketing oriented, looking for new opportunities and bringing in new customers’ (Respondent 12, personal communication, December 6, 2013). However, the other tax advisors working in a network organization (N=4) mention that there role is more an advising and assisting role. They note that they are not dependent on the Netherlands, because they work within their worldwide network. These tax advisors tell their clients the advantages of Netherlands, and make calculations for the costs and benefits for doing business in the Netherlands. Respondent 8 (personal communication, December 2, 2013) notes further that the tax advisor also can be seen as ‘the gateway to the tax authorities’. The tax advisors doesn’t try to structure as aggressive as possible, but ‘tries to structure to a defensible position, what may increase the comfort of the tax authority’ (personal communication, December 2, 2013).
From the tax advisors that are not part of a network (N=8) says a large part (N=6) that their main role is promoting the Netherlands by international companies. ‘The tax advisor goes to potential investors abroad to let them know that the Netherlands has a
competitive tax rate’ (Respondent 3, personal communication, November 22, 2013). Respondent 14 also mentions that companies with a network like the big four companies are known around the world, however from the other companies ‘tax advisors travel around as shoe salesman to promote the Netherlands’(personal communication, December 19, 2013). It’s ‘a challenge, to convince people who are looking for markets across borders’ (Respondent 15, personal communication, December 20, 2013). The other advisors (N=2) see their role more in explaining why and when the Netherlands is attractive, compared to other countries. ‘The tax advisor can have an important role by calculating what the company pays now and what it pays after choosing for the Netherlands’ (Respondent 11, personal communication, December 6, 2013).
More than half of the tax advisors (N=9) gave their opinion about how big the role of the tax advisor is in attracting international companies to the Netherlands. The tax advisors working in a network organisation (N=5), see the role in the range of limited till an important role. The role is according to Respondent 2 overstated, because like accountants, lawyers and doctors they all overestimate their own role (personal communication, November 22, 2013). The role of the tax advisor would be important according to Respondent 6 (personal communication, November 29, 2013). However, the decision for a number of countries is often taken from the business, after which the tax advisor is involved to calculate the best option. Also the tax advisors not working in a network (N=4) have different opinions about the size of the role. Between accompanying and a big role. According to Respondent 11 ‘we must not forget that the tax advisor is only one component and often not even the crucial component’ (personal communication, December 6, 2013).
5. Discussion
This section is an evaluation and interpretation of the results of prior research, indicates the limitations of this research and gives suggestions for future research. For the evaluation and interpretation the same structure is used as in the result section. To give an impression of the attractiveness of the Netherlands for international companies, this study examined why international companies invest in the Netherlands and how the tax position of the Netherlands can be compared to other European countries. To quantify the attractiveness of the Netherlands, the attractiveness is elaborated into several country-specific factors (Davidson, 1980). In the question of the country-country-specific factors of the Netherlands, there was no distinction made between FDI and investments without substance (SEO Economic Research, 2013). However, a large number of tax advisors noted that there is a difference in attractive factors between those investments.
The attractiveness survey of EY (2013) and the report of KPMG (2013) about investments in the Netherlands, report about country-specific factors for FDI in the Netherlands. The most frequently cited factors in these reports and mentioned by the tax advisors are the factors: infrastructure, politics/law and trading country. The factor infrastructure was appointed, by both the reports and the tax advisors for transport and logistics but also for the internet connectivity in the Netherlands. The factor politics/ law stands in particular for the stable position in relation to regulations and legislation of the Netherlands. The last factor, trading nation is mentioned because the Netherlands has a society and culture of openness (KPMG, 2013) and is attractive for its entrepreneurial culture (EY, 2013).
The report of KPMG (2013) and Van Dijk et al. (2006) reported about country-specific factors for investments without substance in the Netherlands. The most frequently cited factors in these reports and mentioned by the tax advisors are the factors related to tax. The factors most mentioned are; APA, participation exemption, absence of tax on interest, and royalties and knowledge and education of the tax advisors. In general, both in the literature and the opinion of the tax advisors is that there is the image of the Netherlands as an attractive country for businesses to invest. Both because there are many different attractive country-specific-factors and the Netherlands has attractive fiscal legislations in comparison with other European countries.
To discover how tax advisors in practice cope with the tax advantages of the Netherlands, the tax advisors were asked to give their opinion about companies that invest in the Netherlands for tax reasons. Tax advisors are positive about companies that save tax by using the Netherlands, this corresponds with the view of Friedman (1973) that companies do not take into account the stakeholder when avoiding tax payments (Preuss, 2012b). However tax advisors do not advertise with the tax advantages of the Netherlands to foreign companies. For tax advisors working in GPN firms the global network is very important to obtain new customers. However, the tax advisors working in a firm without a GPN, draw more attention to themselves by giving presentations, putting information on their websites and making use of social media to explain the country-specific-factors of the Netherlands.
According to Piciotto (2004, p.83) tax avoidance can be characterised by “to do so by lawful means”, against tax evasion which is illegal. The boundary therefore is the
law. Most of the tax advisors also mention the law as the ultimate boundary between aggressive tax planning and CSR. Christensen and Murphy (2004) point out specifically the relation between tax avoidance and CSR and the role of the shareholders. The shareholders were also mentioned by a number of tax advisors (incorporated in boundary stakeholders). However, most tax advisors talked about the influence of the media on public opinion. According to them, the media have too much influence on companies selling consumer products. They argue that the media should not determine the rules of the game. But if there is serious resistance against the use of legal tax rules, the government could react on this by changing those rules. This is also the approach that Piciotto (2004) proposes against undesirable tax avoidance.
Piciotto (2004) states that companies can make use of international tax avoidance, because there are different rules and tax regulations between countries. Also the advisors acknowledge that if there should something be done against tax avoidance, countries should do this together. Therefore they are all quite positive about the BEPS report of the OECD. Countries should work together towards a level-playing field. However, the tax advisors are also sceptical about the initiative of the OECD, because it is difficult to implement. The suggestion is made, not to start with 15 points, but with some points and to build this out.
PWC (2013), EY (2013b) and the tax advisors received the purpose, namely transparency, of country-by-country reporting well. However PWC (2013) and half of the tax advisors question the details of the initiative. It is unclear what this report will contain. Therefore, both PWC (2013) and tax advisors noted that it must be more than
