Multinationals and taxes

In the past few years, an increasing number of multinationals have made the news for large-scale use of tax planning opportunities. The Organisation for Economic Collaboration and Development (OECD) and the European Commission are studying these cases closely and investigating whether the current concepts of international tax law can be maintained. To this end, Leiden researchers have developed assessment models and are advocating clearer rules.

European states and national tax sovereignty

In order to combat tax evasion by multinationals, European States have to adjust their tax policy. However, European Union Member States also have to adjust their national legislation to European regulations. This results in a complex legal puzzle. Research by the International Tax Center and the Tax Law Department has led to concrete insights into how national and international rules are related, and how rules can be adjusted so as to make them mutually compatible. This information is of great value to national governments and European bodies such as the OECD. For example, Sjoerd Douma, Professor of International and EU Tax Law, developed a model which makes it possible to assess how the contradictory principles of national fiscal sovereignty and the free movement can be recon-ciled. This model can be applied to the measures proposed by the OECD for combatting tax avoidance by multinationals.

Dutch tax treaties

Multinationals establish letterbox companies in our country because of its favourable tax climate. They use the Dutch tax treaties to gain tax advantages. To prevent this, researcher Jan Vleggeert is calling for the Netherlands to stop issuing so-called rulings to letterbox companies. These are agreements made between the government and multinationals or other taxpayers which clarify the application of tax rules in a specific case. As a result of these rulings, letterbox companies can be certain beforehand of the fiscal consequences of their proposed transactions, which may promote abuse.

Alleged state aid

Research on tax avoidance by multinationals also focuses on the question of whether the agreements made by the European Union Member States with multinationals reducing their effective tax rates can be interpreted as unlawful State aid. State aid offers companies unfair advantages and is illegal according to European regulations, unless the European Commission specifically approves it. A potential example of State aid is when an international parent company in the Netherlands is exempted from paying tax on dividends (a distribution of profits to the company’s shareholders), where the payment of this dividend was tax-deductible in the hands of the subsidiary company abroad. Multinationals use these arrangements frequently; in practice they involve very substantial sums of money. The European Union is aware of this problem, and a European directive has been adopted that intends to make this arrangement impossible in future. Whether the new directive will be really effective is an important topic of research.

Corporate social responsibility and ethics

It is debated more and more often how taxes should be embedded in a multinational’s policy on corporate social responsibility. Leiden researchers have done concrete suggestions in this area. They give advice and guidance to companies and to society as a whole on how to deal with the ethical aspects of tax planning.