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The NY Times (20 September 2018) published a piece on the Dutch tax climate with some quotes from our State Secretary of Finance, Menno Snel. He said notably: ‘We must be fair in recognizing that some companies are misusing the open tax system that the Netherlands has.’ In short, the Netherlands did go along with the globalization and competition game, and was pretty good at it. Inward investment is around $4 trillion and outward investment around $5 trillion. The Dutch tax system played a role as well. However, in the cases mentioned by the NY Times – apart from IKEA – there seems to be no misuse at all. On the contrary companies like Nike are perfectly in line with the BEPS golden rule.


Melians: ‘And how, pray, could it turn out as good for us to serve as for you to rule?’

Athenians: ‘Because you would have the advantage of submitting before suffering the worst, and we should gain by not destroying you.’

Use, abuse, misuse: confused?

Earlier this year, Total’s CEO Pouyanne said that ‘we are in a new world where geopolitics are dominating the world again’. That is a weird observation. Geopolitics have always dominated the world and the world markets. And markets have always ‘disliked the binary outcomes – and accompanying sharp market moves – that politics can bring.’ After WW II the US took over from the British Empire and turned the world into a free marketplace, establishing a detailed system of rules that enabled free trade and eliminated obstacles for such trade. A ‘winner takes all’ strategy it seemed made (US) firms bigger than ever. More than 50% of the biggest companies in the world are US based. Number 2 (China) has about 17% or so. America First.


This week (25 September 2018) Trump told the UN General Assembly that the US under Trump ‘rejects the ideology of globalism’. Are these the words of ‘an emotionally overwrought, mercurial and unpredictable leader’? I do not think so. Trump is intellectually challenged but not stupid. Political scientist Arendt noted on Europe:

‘When Europe in all earnest began to prescribe its “laws” to all other continents, it so happened that she herself had already lost her belief in them.’

History now seems to repeat itself with the US.

Trump further reminds me of that guy in the Netflix series Orange Is The New Black who worked for a company which acquired the ‘Orange Is The New Black’ prison (I forgot the name). He told the inmates that they could get a job if they met certain tests. That took the inmates days of filling in all kinds of forms with difficult and personal questions. But at the end of the day, the test results were completely ignored and he picked the prisoners he needed at random. Confronted with that scam, he explained: ‘My system is to let them think that there is a system.’ That is the system Trump has too. There is no system, just a ‘Will for Power’. Trump is issuing contradictory instructions, he is insubordinate and he makes people miserable, to which he would reply as Sorkin’s Steve Jobs: ‘Even if that were true, it doesn’t sound that diabolical to me.’

Since Deng Xiaoping, China plays the free market game as well. And with growth of on average 10% since 1975, and releasing 800 million people from extreme poverty, it is very successful in this game. China is likely to be the biggest in 2030 (IMF latest estimate). So now Trump says literally: the US is getting raped by China and I do not want to play the globalization game anymore. A special @metoo experiment, I guess. After his September 2018 visit to el Presidente Trump, Jack Ma was asked to comment on especially the rape accusations and Jack Ma’s reply was close to brilliant. First he said there is freedom of speech in the US so he respected Trumps views, but he did not agree. It was US strategy to outsource jobs to Asia and Mexico; it was US strategy to focus on IP rights rather than jobs; it was US strategy to invest in Wall Street and Silicon Valley and to spend $14.2 trillion on 13 wars, and not to invest in small and medium sized companies in the mid-west, and in opportunities for its own people. As a consequence, the US faced a 2008 crisis which burned through $19.2 trillion of value and caused 34 million jobs globally to be destroyed etc., etc. In short, own up to your choices and stop blaming others (my words).

Menno Snel in the NY Times

The week before the NY Times (20 September 2018) brought a piece on the Dutch tax climate with some quotes from our State Secretary of Finance, Menno Snel. He said notably:

‘We must be fair in recognizing that some companies are misusing the open tax system that the Netherlands has.’

I think that is a fair summary. But I am also sure that Schiphol Airport is used by crooks and thieves too. As sure as these crooks and thieves are using criminal paradises like Delaware (US) or US-designed smart phones to do their dirty work. So I would argue, what is misuse and to what extent has it happened, and to what extent is the Netherlands responsible for that? In that the NY Times is not very clear.

Jack Ewing’s NY Times article mentions Nike as an example of misuse of the Dutch ‘open tax system’. But example of what? BEPS’ s golden rule is really about reporting and taxing profits where the value is created. And value creation has to do with substance. Look for the people and the key functions they perform and, regarding IP, look for the DEMPE functions, etc. Let’s apply this golden rule to Nike European Headquarters (EHQ).

The Dutch story of Nike

Decades ago, Nike decided to expand outside the US and needed an entry into the EMEA market. Under the competition game it needed to outperform the Reeboks and the Adidas’ of this world. The EMEA expansion is a perfectly bona fide business reason under the current capitalistic regime, even for the BEPS motive tests. It found Hilversum for its EHQ and made a beautiful campus there. It has more than 2000 highly qualified employees, a great employee store, an EMEA CFO, an EMEA CEO, EMEA controllers, design departments; you name it, they have it or control it in Hilversum. And yes, they have their European distribution center in Laakdal, Belgium, managed under the EHQ umbrella of Hilversum. And yes, they are part of Nike’s global group and responsible to their shareholder, Nike Inc. and their operations are fully disclosed in the SEC 10-K statements.

Is this misuse? No, of course not. This is globalization. This is what all politicians wanted since Bretton Woods (1944). The execution of this structure is exactly what the OECD is looking for: substance, key functions and value created in the country where the legal seat, the bricks and the people are. Would it be obliged to own the IP it uses? No, that is a global corporate decision and there is freedom of business choice. Again, that is capitalism at work. That – I guess – Bermuda is owning the non-US sales intangibles is primarily a US issue. The Dutch tax authorities only have to deal with the arm’s length character of the royalty paid by EHQ (and they do and did!). It is not up to the Dutch tax authorities to comment on how easy it was for US companies to transfer IP out of their territory. Refer to Antony Tings’ excellent article on Apple, British Tax Review 2014, no 1. I understand that Nike has a CV/BV structure in place and that is – I think – unfortunate. Any CV/BV structure is artificial and is only effective on paper. But again, in these structures US tax claims are deferred; no Dutch tax claims are at stake.

P.O. Box companies and Ikea

The only real misuse I see are the P.O. Box companies for shady plutocrats and other set-ups which do not balance structure with substance. But that policy has been shut down categorically not by Menno Snel (as the NY Times states) but by Treasurer Jeroen Dijsselbloem of the previous Dutch Rutte-cabinet. Dijsselbloem deserves full credit for that! Other companies are mentioned by Jack Ewing like IKEA, Deloitte and Google. I am not sure which point the NY Times is trying to make by naming Deloitte and Google. For IKEA, however, it does have a point, mainly because IKEA founder Kamprad was extremely vocal in his dislike for paying taxes and the IKEA-structure, with tax exempt foundations on top, is slightly ridiculous from a business point of view. The new CEO, however, has a totally different view: tax, he says, is a contribution to society and not simply a cost item.


All in all, it is pretty unfair that Melos (Netherlands) should be hit by the NY Times and Athens (US) is spared. The aggressive tax planning industry really originates in the US. To quote US tax expert Kleinbard:

‘American multinational firms have established themselves as world leaders in global tax avoidance strategies, through the generation of what I have termed “stateless income”.’

International tax

The international tax architecture provides a wonderful basis for US companies to minimize their taxes on non-US sales and profits. This architecture is summed up by Elkins as follows:

‘Probably the most uncontroversial thing that one can say about international taxation is that it is a mess.’

Erik Schmidt of Google, when responding to Google’s effective tax rate of 2-4% on non-US profits, added insult to injury:

‘And the fact of the matter is these are the way taxes are done globally.’

This mess was primarily due to the biggest economy and biggest donor to all international institutions: the US. The US keeps on embracing the arm’s length principle and the separate entity approach, thus preventing a real and fundamental review of the international tax system. Such a review is highly desirable since the current framework is out of date, and not capable of coping with the globalization and digitalization of the world economy. Within the G20 and the OECD no consensus was reached on how to tax the digital economy. So the Facebooks, Netflixes, Apples, Googles and Microsofts of this world would still be getting away with tax murder (if not for the US 2017/18 tax reform). And what about the help and support American firms were getting from their own government, who always applied an ‘America First’ policy! How difficult was it for the US to eliminate their check-the-box rules? Rules that really endorsed massive tax planning techniques by US firms.

But, on the other hand, tax is not driving the world today; technology is. For if more than 50% of the world population is now, in 2018, middle class or wealthier, Pax Americana has not been that bad all together.

Concluding remarks

In short, the Netherlands did go along with the globalization and the competition game, and was pretty good at it. Inward investment is around $4 trillion, and outward around $5 trillion. The Dutch tax system played a role as well. However, in the cases mentioned by the NY Times – apart from IKEA – there seems to be no misuse at all. On the contrary companies like Nike are perfectly in line with the BEPS golden rule.

Furthermore, the lenient Dutch tax policy towards mail box companies has dramatically changed for the best. This impressive change was initiated by the social democratic Treasurer Dijsselbloem under the previous cabinet Rutte. Dutch government (particularly Jeroen Dijsselbloem again) have played a very active and important role in the EU and OECD efforts to counter aggressive tax planning (BEPS, ATAD1 and 2).

The majority of the big investments in the Netherlands are real tangible investments in the country, and generally in line with BEPS golden rule regarding value creation and taxation – go visit Nike’s campus in Hilversum. It is the US which could and should have done much better in this area. The US tax reform is a first step towards a more realistic and equitable tax management. But there is lot of gardening still to be done, especially internationally. On the upside, tax is not driving the world, technology is. We now have more than half of the world population which is middle class or wealthier. Tax may be a mess, but as said above, the Pax Americana has not been that bad after all! Nor for Trump and his voters... :

‘It’s what they want, after all: “a god to punish, not a man of their infirmity”.’


mr. P.M. de Haan
De Haan advies
NLF Opinie 2018/52
10 oktober 2018

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