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Tech firms face massive tax bill if Dutch vote to end loopholes

'Dutch sandwich' may be past its sell-by date

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US corporations including Dell, Yahoo!, and Google could be facing an extra $90bn in taxes if the Dutch government presses ahead with plans to stop the country being used as a conduit for companies looking to avoid paying local revenue officials.

"We should not be a tax haven," said Ed Groot, a parliament member from the Labour Party, part of the coalition that gained power in November, told Bloomberg.

He explained that the government is "fed up with these so called PO Box companies. If they go somewhere else we are not sorry at all because they spoil the name of Holland. Otherwise you can wait for retaliation measures and this we don't want."

The so-called "Dutch sandwich" used by canny tax accountants involves shifting revenues through shell companies based in the Netherlands to Bermuda, the Cayman Islands, and other sunny tax havens. It is particularly effective if used with a loophole in Irish tax laws known as the "Double Irish."

Silly names aside, these tax schemes allowed companies to legitimately avoid paying tax at US and UK rates, with €10.2tn ($13.7tn) in 2010 flowing through 14,300 Dutch "special financial units." In return, the units pay out €1bn ($1.3bn) to the Dutch tax authorities before the money is moved elsewhere.

For example, Google avoided paying about $2bn in worldwide income taxes last year, with Eric Schmidt saying he was "very proud" of the fact. Microsoft, Apple, and others are also known to use these legitimate tax avoidance schemes in the Netherlands to reduce taxes on overseas profits. "It's called capitalism. We are proudly capitalistic. I'm not confused about this," Schmidt said.

Dell's Dutch subsidiary Dell Global BV paid 0.1 per cent tax on over $2bn in revenues in 2011, thanks to a deal with a Singaporean subsidiary, Bloomberg reports, which accounted for almost three quarters of the firm's worldwide income. This is despite the fact the firm has had no actual employees in the Netherlands since 2009.

"We've always been clear that Dell has a responsibility to pay its fair share of taxes," said Jess Blackburn, a Dell spokesman. "We operate according to all applicable laws and regulations and in accordance with the letter and spirit of those laws."

Reindert Dooves, head of Yahoo!'s subsidiary in the Netherlands, said that the company pays tax rates of around 1.35 per cent on overseas revenues and in 2009 paid 98.7 per cent of those into accounts in the Cayman Islands. Yahoo! has reported it is having discussions with US tax authorities over an unspecified issue.

"The benefits to Holland are employment, high-level tax advisers," said Jos Peters, tax director for Merlyn Tax Solutions & Royalty Conduit Services in Rotterdam. "They come to us and why should we refuse this? We are not doing anything illegal or immoral."

Meanwhile, the US government is being lobbied hard by Silicon Valley to allow a special tax holiday for the repatriation of overseas earnings at a token tax rate, on the grounds that it would encourage US job growth and help strengthen the economy.

The industry successfully persuaded the Bush administration to pass a similar "special" tax break in 2004, the Homeland Investment Act, which saw billions returned to the US and promptly doled out to shareholders or used to buy stock and support the share price of firms while they continued to cut and outsource US jobs.

The Dutch debate comes at a time of increasing scrutiny of corporate accounting across the cash-strapped EU. Both the Netherlands and Ireland are coming under steady pressure to close the loopholes that are denying revenues to other member states, but movement has been slow to date.

"I regard the Netherlands as the central European hub in corporate tax avoidance," said Sven Giegold, a member of the EU parliament from Germany's Green Party. "The main challenge is you need consensus within the EU, and waiting for consensus on tax matters is like waiting for Godot." ®

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