Why did you choose this topic?
“Treaties between nations are so difficult to adjust to the current situation. Some bilateral tax arrangements (between two countries, ed.) date from the sixties and seventies. I wanted to find out whether we could update them or arrange a multilateral treaty that meets modern standards in one go.”
And is it possible?
“Yes, but its substance would never be enough to completely solve tax avoidance. You mustn’t overestimate what we can do with such an arrangement, because we are tied by political partnerships. The Organization for Economic Cooperation and Development has now come up with a ‘multilateral instrument’ that could amend all the bilateral agreements but its content would not remedy the problem.
“The obvious interests are easy gauge because it’s all about money. Parties can see exactly what they would lose. The easier it is to define the interests, the more difficult it is to reach an agreement. Nations want to be sure that they’ll get something out of it before they sign. If they won’t benefit from it, they’ll want out. America, for example, is very sceptical.”
Your study concentrates on multinationals that avoid tax rather than evade tax. What’s the difference?
“Avoidance is legal while evasion is illegal. That’s what makes it so troublesome: avoiders can point to the government and say: well then, change the rules. But a sole government can only change the rules if everyone else does. People can name and shame but that only works with companies that everyone’s familiar with.”
Is there enough support for a change?
“It’s a political matter and my research doesn’t really go into that. You need to find a balance: you want to stimulate employment and create a good investment climate but everyone’s disgruntled if your local coffee corner pays more tax than Starbucks.
“I work for the Tax Administration, so I can’t actually say much more, but there’s plenty of discussions about it. However, I can tell you that while the Netherlands, being a small country, benefits from flexible legislation, it also needs a close-knit political environment surrounding it. So, we can’t just say that we won’t cooperate. The Netherlands needs to take some responsibility.”
Multinationals operate in lots of countries. How should their tax be distributed?
“We could agree on a formula. Take iPads, for instance; there are three aspects to that product: labour, sales and (intellectual) property rights. If it’s designed in America, made in China and sold in Europe, everyone has a right to the tax on one third of the profit, but that’s not feasible. If we paid more attention to intellectual property, China, for example, which concentrates on labour, would lose out on revenue. Such arrangements could only work in the very long term.”
How could we improve this situation?
“I’ve noticed that NGOs are always sparking the debate on climate change. There is a conference of parties that’s always discussing it, with lots of media attention. So, you see, interests can be integrated but, so far, it’s not the case with Tax Law. However, it might the way to get it on the agenda.” AK