Germany gets Netherlands on board for global tax revamp

BERLIN (Reuters) - Germany and the Netherlands agreed on Wednesday to back global efforts to revamp international tax rules for the digital era, as part of efforts by the Dutch government to clean up its reputation as a major enabler of corporate tax avoidance.

FILE PHOTO: Finance Minister Olaf Scholz addresses a news conference to present the budget plans for 2019 and the upcoming years in Berlin, Germany March 20, 2019. REUTERS/Fabrizio Bensch

The emergence of internet giants such as Google, Facebook and Amazon has pushed international tax rules to the limit as they often book profits in low-tax countries rather than where their customers are located.

Global reform of the rules had been debated for years with little progress until January when nearly 130 countries and territories agreed to tackle some of the most vexing issues, such as when a country has the right to tax international transactions.

In a joint statement issued after talks in Berlin, German Finance Minister Olaf Scholz and Dutch Deputy Finance Minister Menno Snel said that steps had been taken to combat tax avoidance by agreeing and implementing the OECD- and EU- standards against base erosion and profit shifting (BEPS).

But both stressed that more needed to be done to tackle the problem of entities that are subject to no or low taxation.

“We recognize that further measures are important to ensure a sufficient level of taxation globally. In this regard, the Netherlands will introduce a conditional withholding tax on payments to low tax jurisdictions,” the joint statement said.

The Organisation for Economic Cooperation and Development (OECD) is working on proposals that aim to tackle how to determine when a country should get the right to tax companies and also on a minimum level of corporate taxation.

“We are committed to further work out this minimum tax standard, while taking into account undesired risks of double taxation and over-excessive administrative burdens,” Scholz and Snel said.

Features of the Dutch tax system criticized by experts are advance rulings granted to corporations, a large network of tax treaties, and low taxation of payments that pass though the Netherlands.

The agreement with Snel marks progress for Scholz who has advocated a broad, international approach to tackle the problem instead of national governments pursuing solo efforts.

In the absence of reform in the last few years, a growing number of countries, including Britain and France, have pushed ahead with their own plans for national taxes targeting mostly U.S.-based digital companies.

European Union governments earlier this month scrapped a plan to introduce an EU-wide digital tax as some states opposed it. The EU could reopen its debate if the OECD’s planned reforms should be delayed.

Reporting by Michael Nienaber; additional reporting by Toby Sterling in Amsterdam