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Tax havens are more and more used as locations for international capital flows. This is not only the case for traditional small island economies, but also for larger conduit countries. Globalisation and lower taxes on corporate income can explain the rise of tax havens to some extent. A more logical explanation is the increase in international corporate tax avoidance. Although the evidence is not definitely conclusive, various developments point in the same direction, such as the rise of indirect capital flows and the fast increase in international payments for the use of intellectual property rights. These developments also suggest that the implemented measures against corporate tax avoidance are only partially effective, and that new international measures are necessary to curb the role of tax havens and conduit countries in international capital flow structures.

This paper examines corporate tax avoidance involving Dutch special purpose entities (SPEs), or shell companies. We use unique data of the SPEs including the origin and destination country of dividend, interest, and royalty flows passing the Netherlands. First, we present descriptive statistics of these flows which amount to 140 billion euro in 2016. Second, we collect national tax data on the corporate income tax and fiscal treatment of these flows. By combining tax parameters with bilateral flows, we can assess the potential tax gains for multinational enterprises using Dutch SPEs. We find massive tax savings for royalties when Dutch SPEs are used as an intermediate station compared to direct flows between the origin and destination country. We measure this tax gain at almost 3 billion euro in a single year. However, we do not find such tax savings for dividends and interest. We explain where we lack information and hence cannot measure possible tax gains. In regression analysis, controlling for country characteristics, we find that tax differentials partially explain the geographical patterns of income flows diverted through the Netherlands. This paper is one of the first using bilateral income flows as dependent variables instead of FDI stocks or flows.

This is an Opinion Statement prepared by the CFE ECJ Task Force on the PRA Group Europe case, in which the EFTA Court delivered its decision on 1 June 2022. At issue in PRA Group Europe was the interaction of the Norwegian "interest barrier rule" ("interest limitation rule"), which generally limit the deductibility of interest payments to affiliated resident and non-resident entities to 30% of EBITDA, and the group contribution rules, which permit tax effective transfers between group members, but are limited to Norwegian entities. As group contributions also increase the EBITDA of the recipient Norwegian entity (and decrease it at the level of the paying Norwegian entity), companies in the Norwegian tax group can achieve interest deductions under the interest barrier rules where profits ("tax EBITDA") and interest expenses are distributed unevenly between the companies in the group, while a similar opportunity to escape (or lessen the impact of) the interest barrier rules is not available to cross-border groups. The EFTA Court took a combined perspective on the interaction of those rules and found them to constitute an unjustified restriction of the freedom of establishment under Articles 31 and 34 of the EEA Agreement. The EFTA Court's decision is particularly interesting from an EU law perspective, as the interest barrier rule of Article 4 of the Anti-Tax Avoidance Directive (ATAD) similarly foresees the option for Member States to introduce a domestically-limited "interest barrier group" to permit a calculation of exceeding borrowing costs and the EBITD at the local group level. The CFE ECJ Task Force welcomes the EFTA Court's progressive impetus on fundamental freedoms doctrine: PRA Group Europe AS makes it clear that for purposes of identifying a restriction, for establishing comparability and for justification, a combined perspective on the interaction of two sets of rules – here the interest barrier on the one hand and the group contribution regime on the other – is necessary. From that perspective, the interaction of the Norwegian rules on the "interest barrier" and on group contributions leads to unjustified discrimination in cross-border situations. However, if asked to decide on a similar case, the CJEU might take a different approach. First, the CJEU could take a different perspective on the available grounds of justifications and, e.g., accept the coherence of the tax system as such ground. Second, Article 4 ATAD gives the Member States the option to treat an "interest barrier group" as a single taxpayer and to limit the group perspective to domestic settings. Even if such an option in the ATAD is not viewed as "exhaustive harmonization", one could wonder if the mere existence of the ATAD and the value judgments made by the EU legislature therein could lead to a different outcome in the EU (CJEU) vis-à-vis the EEA (EFTA Court).

Exploiting unique datasets covering over 29,000 tax evaders in the Netherlands, we investigate the distribution of tax evasion and its implications for the measurement of wealth inequality. Tax evasion is concentrated at the top of the wealth distribution with over 10% of the wealthiest 0.01% of households – the “super rich” – evading taxes. At the top, households evade around 8% of their true tax liability. The “merely rich” (P90-P99.9) own 67% of hidden wealth, while the “super rich” account for only 7%. Consequently, the correction for offshore wealth has a modest effect on top wealth shares. We describe a number of explanations for the distribution of tax evasion by Dutch households: low-cost tax evasion opportunities in neighbouring countries for the “merely rich”, sophisticated forms of tax evasion for, low effective tax rates on and migration to low tax jurisdictions by the “super rich”. Taken together, these explanations suggest that the distribution of tax evasion strongly depends on a country’s geographical and institutional settings.

We study how differential taxation of personal and corporate income impacts the corporate share of new firms for 31 countries over 1998–2018. We build a novel database that identifies the tax treatment of partnerships either as corporations or as passthrough entities. We find a tax elasticity of 0.07 for the period 1998–2007 and of 0.12 for 2008–2018. Estimates are larger for countries where the presence of partnerships is nonnegligible and where they are treated as passthrough for tax purposes, suggesting that the tax sensitivity of organizational-form choice interacts with the relevance of partnerships and their tax treatment.

The rapid endorsement of the OECD Multilateral Instrument to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) has prompted several commentators to argue that the anti-abuse provision in the MLI, namely the principal purpose test (PPT), could become part of customary international tax law. This article casts some doubt on that possibility. The authors argue that in light of the difficulties in ascertaining customary international law (CIL) and the structural nature of the PPT, it is unlikely that the PPT will become part of CIL. Additionally, the authors take the opportunity to briefly discuss whether the focus on CIL is to some extent a fruitful debate. Instead of emphasizing the source of the norm, which overstates the importance of some norm being “law”, it is the authors’ view that it would be better to focus on improving the quality of the norms regardless of their source.

The question whether fiscal policies can be considered sustainable in the light of population ageing is old, but still relevant. Even more so, its relevance has increased recently as public debt levels have gone up dramatically as a result of the COVID-19 crisis. The follow-up question if public finances are deemed unsustainable is also still relevant: to what level should the public debt ratio be reduced in order to restore fiscal sustainability? The standard approach to assess fiscal sustainability is that of generational accounting (GA). This paper reviews GA. It argues that GA is a powerful instrument that puts the finger on the balance between generations. At the same time, GA suffers from some weaknesses that have become more significant over time. We conclude that it is time to update GA.

This contribution considers the use of the principle of proportionality to review measures combatting international tax abuse (avoidance and evasion). Our claim is that proportionality, which tends to be viewed as the key analytical tool to balance tax equity against the interests of taxpayers, is ill-suited to the review of such measures. This we will demonstrate from a theoretical angle, but also through the analysis of the CJEU, international investment tribunals and WTO adjudicatory bodies: rather than balancing tax certainty against tax equity or focusing on the efficiency of the anti-tax abuse measures in the pursuit of substantive policy goals (the types of enquires normally associated with proportionality), what we observe is an assessment and gradual demarcation of the rightful territorial extent of the State’s taxation powers.

Tax specialists are facing the challenge to bridge the gap between their own, deeply technical perspective and the critical viewpoint of a variety of stakeholders, all with their own interests. Tax Assurance offers the first comprehensive overview that covers the full range of topics related to controlling tax. The book adopts a broad perspective, based on the principle that everything concerning the process of taxes in a company belongs to the field of tax assurance. This not only includes how taxes end up in the commercial accounts (tax accounting), but also (tax) risk management, internal control, management control, corporate governance, tax policy, relations with media, relations with tax authorities, ethical sides of taxation and audit are relevant for tax assurance in a broader sense and are therefore present in this book. This wide range of topics is explored in different chapters, each written by an author or authors who have expertise in that particular field. Most authors are also lecturer or guest lecturer in the Tax Assurance program of Tilburg University and publish on the topic regularly.

This analysis looks at the advent of the ICAP, its regulatory framework, the connections with joint audits, cooperative tax compliance and the European trust and cooperation approach, its instituting elements and characteristics, procedural aspects and some challenges faced by the programme.

Recently, the Netherlands Tax and Customs Administration (NTCA) introduced a redesign of its ‘Horizontal Monitoring’ model. This co-operative compliance approach is based on trust, transparency and mutual understanding between NTCA and (corporate) taxpayers. It is a way of enhancing voluntary compliance, which is to say payment of the right amount of tax at the right time. This informal approach is about co-operation and fait treatment rather than about competencies (powers), obligations and rights, without neglecting the legal framework (including the principles of proper administrative behaviour) in force. In a co-operative relationship there is a willingness to go beyond compliance with regard to procedural law requirements (disclosure, etcetera). Horizontal Monitoring must be seen as supplementary to traditional, vertical supervision. This is the traditional command-and-control method of regulation, whereby the authorities use unilateral enforcement powers such as the power to invoke disclosure requirements, audits and sanctions (like (administrative) penalties and reversal of the burden of the proof). This updated chapter is structured as follows. Firstly, the basic characteristics of Horizontal Monitoring are briefly summarized with a view to procedural tax aspects. Then, an overview is presented of the normal legal framework which determines NTCA’s enforcement powers and taxpayers’ obligations. Thirdly, some aspects of the statutes and legal principles in force are elaborated upon because, at first sight, the Horizontal Monitoring approach might seem to be at variance with these aspects of the legal framework. This is followed by some conclusions.

Great minds change our views on state and society. But how do the political and social ideas of famous philosophers impact their own ideas about the justification of taxation and the distribution of the tax burden? In this paper Jane Frecknall-Hughes and I show how Hobbes, Locke, Hume, Montesquieu, Rousseau, Paine, the Federalists and Anti-Federalists gradually transformed western views on taxation, tax justice and tax policy.

Brief description of the tax history of the Netherlands within the theme of the book 'The Dialectical Relationship between Taxation and the Political Balance of Power'. After an introduction of taxation in the Netherlands in the periode 16th-19th century the introduction of modern wage tax, corporation tax and dividend withholding tax during World War II is analyzed. The chapter ends with the developments in the 20th century, when icome tax was used to discriminate between men and women and married and unmarried persons. This discrimination was only redressed towards the end of the last century. The conclusion is that in the Nerherlands, taxes have been an accelerator of societal changes (both good and bad) but also have lagged behind societal change.

According to the 2018 Mercer Global Pension Index, the pension systems of Denmark, Finland, and the Netherlands are the best three in the world. They ensure a minimum old age income for all and provide relatively high replacement rates for a large majority of citizens. At the same time, their fiscal sustainability is relatively robust with respect to population aging. This article seeks to identify differences and similarities between these three pension systems, including the institutional framework within which they operate. The authors emphasize the collective and compulsory nature of the earnings-related pension schemes and the important role for social partners in decision making as their common elements of success. They also discuss the most important challenges these systems face, namely, how to maintain the legitimacy of their decision-making processes given declining unionization and how to avoid restricting individual choices too much. TOPICS:Retirement, social security, pension funds, wealth management Key Findings • The 2018 Mercer Global Pension Index ranked the pension systems of Denmark, Finland, and the Netherlands as the best three in the world. Their common strengths include minimum old-age income for all and relatively high replacement rates for most citizens, together with substantial funding and automatic links between the pension eligibility age and life expectancy, which improve their fiscal sustainability. • The important role of “social partners”—representatives of employers and employees—in the three pension systems have likely been critically important to get acceptance for policies preparing for future demographic burdens and to protect the pension systems from populist proposals. • The pension systems may be subject to some legitimacy issues. This is the case because 1) participation in the pension systems is mandatory for workers; 2) decision makers are often elected based on low voter turnouts among union members; and 3) unionization is declining in all three countries. Another challenge these pension systems face is how to provide sufficient flexibility regarding individual saving for old age within a compulsory system.

This paper combines detailed administrative records on the universe of the Dutch population with national accounts aggregates to provide a thorough description of income inequality before and after taxation and government spending. Accounting for domestic and foreign retained earnings has a substantial impact on inequality, raising the top 10% share of pre-tax national income from 29% to 31%. Overall, the tax system is regressive due to high consumption taxes and a low tax burden on capital income. The entire reduction in inequality - the top 10% income share falls to 26% - comes from government spending that is targeted at the bottom of the distribution.

The main research questions of the paper, therefore, are shaped in line with all these developments: Is the GAAR of the ATAD an effective tool to tackle tax avoidance? And what are the possible problems that may occur during the application?

Fundamental legal principles and rights may function as a check on legislative power protecting citizens against arbitrary interferences of tax legislation with their lives. We’ll start with a description of the fundamental protection of individual rights that exists under Dutch national law and the agencies that have primary responsibility for protecting those rights. This principle of equality is an important judicial instrument to check seriously flawed tax legislation. The testing of tax law against this principle of equality can act as a case study to gain more insight into the topic of constitutional review. Acts of Parliament are tested against international treaties (Article 14 European Convention of Human Rights (ECHR), in conjunction with Article 1 of Protocol No. 1 ECHR (Article 1 P-1 ECHR), and Article 26 International Covenant on Civil and Political Rights (ICCPR). In terms of the method of judicial interpretation, we will show that the Dutch Supreme Court always demands an objective and reasonable justification for any inequality of treatment. This is in conformity with the method applied by the European Court of Human Rights (ECtHR). As for testing tax law against the principle of equality, the Supreme Court acknowledges the wide margin of appreciation of the legislator. If the Court establishes a violation of the principle of equality, it acts very cautious. We acknowledge that the Dutch Supreme Court has initially made a valuable contribution to the constitutional system of checks and balances – underlining the significance of the principle of equality for fair tax legislation. However, in our opinion, the Supreme Court should pay less deference to the policy views of the tax legislator. Next, we’ll discuss the testing of tax legislation against Article 1 P-1 ECHR (right to property). Both the Supreme Court and ECtHR observe a (very) wide margin of appreciation vis-à-vis the legislature if the so-called of the public interest test and the proportionality test are applied. This margin is only exceeded if an individual has to bear an individual and excessive burden. Here, again, the Supreme Court should be less deferential to the tax legislator. With regard to the principle of certainty, no testing of statutory legislation is possible by the courts. Nonetheless, the legislator seems to take the principle of certainty quite seriously. With respect to retroactive tax legislation the State Secretary of Finance has committed himself to rules of conduct with regard to different situations where he deems retroactive tax legislation to be justified. The practice of this soft law instrument shows that the government is more willing to take its partners in law-making seriously than in the case of the principle of equality and the right to property.

This CFE Opinion Statement, submitted to the EU institutions in January 2022, addresses the ECJ decision in État Luxembourgeois v. L (Case C-437/19), in which the Third Chamber of the Court of Justice of the European Union (ECJ) delivered its decision on 25 November 2021, [1.] following Advocate General Kokott’s Opinion. [2.] The Court clarified the conditions for the identification of a taxpayer in group information requests under the Directive on Administrative Cooperation (2011/16) (hereinafter DAC) [3.] and confirmed that article 47 of the Charter on Fundamental Rights requires the information holder to be given the necessary information to assess the request’s legality.

Income from invested capital and from making assets available for the use by others is covered by Article 10-12 OECD and UN MC: Dividends (Article 10); interest (Article 11) and royalties (Article 12). These provisions cover the allocation of tax jurisdiction of income received by both private individuals and enterprises. With regard to dividends, the standard of both MCs is that the tax jurisdiction is shared. The State of source has been granted a limited tax jurisdiction. Its taxation is credited by the recipient's State of residence, even when it otherwise applies the exemption method (Article 23A(2) OECD and UN MC). Shared taxation in connection with an ordinary tax credit is also the system applied to interest under the OECD and UN MC, and to royalties under the UN MC. However, under the OECD MC, tax jurisdiction in respect of royalties is exclusively allocated to the recipient's State of residence. Tax sharing is a typical compromise to settle a clash between the State of source and the State of residence in cases in which both believe that they have justified claims to tax jurisdiction that they do not want to forgo completely. This is especially true in respect of dividends, interest and/or royalties. On the one hand, the State of residence may put forward as justification that the invested capital or the assets allowed to be used emanate from its national wealth. On the other hand, the State of source may emphasize that the income is produced by means of its infrastructure, labour force, etc. These conflicting interests emerge especially in the relationship between typical capital-exporting States, like most of the OECD member countries, and typical capital-importing States, like developing countries. From a budget perspective, there is a real need for capital-importing States to impose and collect taxes on dividends, interest and royalties received by non-residents (see, e.g., no. 8 UN MC 2011 Comm. on Article 10). The 1971 Andean Model deviates from the OECD and UN MC. It exclusively allocates tax jurisdiction on dividends, interest and royalties to the State of source. The UN MC did not adopt this approach; however, it has some flavour of it because it leaves open the maximum rates at which the State of source may tax dividends, interest and royalties. Developing States pleaded for exclusive taxation by the source State (see, e.g., no. 8 UN MC 2011 Comm. on Article 10; no. 9 UN MC 2011 Comm. on Article 11 no. 9 UN MC 2011 Comm. on Article 12). Consensus could not be reached. No winner of the ‘battle of distribution’ between the State of source and the State of residence can be designated. The battle is only transferred to another level. With regard to other items of income, tax jurisdiction is allocated to one Contracting State exclusively or primarily. They may be taxed at full domestic tax rates of the State concerned. Here, tax sharing is not the applied policy, neither in the MCs nor in tax treaty practice. The major drawback of tax sharing is the transfer of tax benefits granted to investors by the State of source to the State of residence as a result of crediting the State of source's tax. Even the UN MC does not provide for a solution of this disadvantage. As a consequence, capital-importing States do not have the opportunity to stimulate economic policies by means of tax incentives in the context of dividends, interest and royalties. A tax sparing credit or a matching credit can remove this drawback. In their DTCs with developing States and subject to certain conditions, European countries, Canada, and Japan have included such credits. The US does not adopt this approach. Currently, the prevailing view under OECD member countries is that tax incentives are not an efficient and effective way to attract foreign direct investments. They will allow tax sparing credits only with respect to certain identified incentives or activities, and will limit in time the application of the tax sparing provisions). Another solution to this drawback would have been the adoption of the solution suggested by Georg von Schanz. In 1892, he suggested a tax sharing at a tax base level and not at the level of the amount of taxes. His proposal was that, e.g., three quarters – or some other part – of the foreign source income would be allocated to the State of source and taxed on the basis this State's domestic tax law. The other quarter – or another counterbalance as the case may be – would be allocated to the State of residence. Von Schanz's suggestion was only applied once: Article 15 of the 1939 DTC between France and the US. The structure and the wording of some parts of Articles 10-12 are rather similar. These provisions therefore have a number of common interpretation issues. This chapter discusses four of these common issues: The terms ‘paid to’ and ‘beneficial owner’; the ‘permanent establishment proviso’ and the procedures for reducing tax at source. An outlook to the future is the final section of this chapter.

Tax is a moral phenomenon. Enterprises bear responsibility for the fairness and integrity of the international tax system. This responsibility cannot be reduced to strict rule following (applying black letter law). CSR and good tax governance entail voluntarily going beyond the mandatory tax obligations. The substantive element of good tax governance concerns the amount of tax that a company pays and Companies should avoid morally irresponsible tax behavior and strive to comply with the spirit of the law. The procedural element of good tax governance concerns public tax transparency. Both should be an expression of an internal moral commitment, rather than a calculated response to external pressures.

This chapter examines the legal issues that may arise when implementing and maintaining a Cooperative Compliance programme. While the majority of jurisdictions introduced such programmes by means of administrative actions, a small minority established them through statutory provisions. On the basis of the research that was conducted, the group made a number of recommendations

Tax complexity is a multi-faceted and pervasive phenomenon. Narrow, detailed drafting of the law is a particular manifestation of tax complexity. Tax legislatures often try to control and regulate every conceivable situation by issuing very specific rules covering the full range of circumstances. The result is a tax system is populated by dense thickets of often thorny rules, which lacks transparency and goes at the expense of certainty and equality. Principles-based legislation is sometimes termed as an alternative regulatory instrument to counter both the complexity of detailed tax drafting and tax avoidance. However, it should not be seen as a magic formula but rather as a helpful addition to the legislature’s toolbox. In this article we will elaborate on principles-based legislation, rule-based drafting, and two other drafting styles - legal fictions and standards. We investigate these three ‘friends’ as alternatives, or supplements, to precise rules from the perspective of (legal) principles as advocated by the legal philosopher Dworkin. It will be argued that securing the integrity of tax law requires a balancing act between different legislative drafting styles such as fictions, standards and principles-based legislation.

Since the “reform and opening‑up” policy in 1978, Chinese tax incentives have experienced fluctuations. China has tailored its tax incentives to create a level playing field in the market, especially after China’s accession to the World Trade Organization (WTO). However, China still has a state‑oriented attitude towards the granting of tax incentives. This can be witnessed from conflicts between certain Chinese tax incentives and the WTO’s subsidy rules. China tends to treat tax incentives as instruments to achieve policy goals, but they often lack the necessary legal control. The European Union (EU) is a comparable power as to China in the world. The ultimate objective of the EU is the establishment of an internal market, which is based on market economy and free trade. State aid law, as a part of EU competition law, aims to limit the negative effects of state aid measures, thus creating a level playing field for all member states. In recent years, it plays an increasing role in restricting the harmful effects of tax incentives in the internal market. How can China improve the legal control over its tax incentives? Are there any inspirations for China from the experiences of EU State aid law? This article makes suggestions to an improved legal control over Chinese tax incentives against the background of EU State aid., Studi Tributari Europei, Vol 8 (2018)

This paper makes a welfare comparison between the issuance of price-indexed and nominal public debt in the presence of fiscal constraints, viz. a debt constraint, a deficit constraint and a combination of both. Distortionary taxes or public consumption are regulated to avoid the violation of the relevant fiscal constraint(s). Under a debt constraint indexed debt is generally preferred, while under a deficit constraint the results are more mixed. Introducing inflation persistence and raising the maturity of the debt tend to increase the magnitude of the welfare differences between the two types of debt. Welfare differences are further affected by the degree to which public consumption and tax revenues are indexed to actual versus structural nominal GDP.

Traditional tax havens and conduit countries have different economic and tax characteristics. This paper shows that conduit countries are larger economies, have higher statutory and effective tax rates, have more bilateral treaties and are more transparent. Because of these characteristics, other countries apply lower withholding taxes on income flows to conduit countries compared to tax havens and do not apply CFC-rules on profit income generated in conduit countries. I assess quantitatively the role of tax havens and conduit countries in international corporate tax avoidance taking account of the literature on corporate tax revenue losses, treaty shopping and phantom investment. I allocate the global tax revenues losses due to profit shifting and treaty shopping to individual countries, using GDP, tax rates, FDI positions and FDI income. Traditional tax havens are only responsible for a small part of corporate tax avoidance. Conduit countries are involved in a much larger share, in particular on treaty shopping. A large share of the profit shifting losses is also due to different tax arrangements between other developed countries.

Society has changed considerably over the past fifty years. Whereas before, most people got married, had several children during the marriage and divorce was still relatively rare, currently, there is much more diversity with different forms of cohabitation. Although this trend is present throughout Europe, there is a large difference in the pace and manner in which the new patterns of society are manifesting themselves there. This article indicates that the same applies to the fiscal recognition of unmarried cohabitants and stepchildren from a married couple and an unmarried couple (‘informal’ stepchildren). In the Netherlands, married and unmarried couples are now treated entirely the same for income, gift, and inheritance tax purposes. This also applies to formal and informal stepchildren. In a European context, the Netherlands is therefore leading the way in recognizing nontraditional cohabitation variants in tax legislation. With this article, the author not only discusses the tax treatment in various European countries but also the possible arguments for (not) equating them. The author hopes to contribute to the discussion of whether extra-marital cohabitation and other related relationships should be treated in the same way for tax purposes as relationships that arise through marriage.