Tax avoidance head-to-head between UK and Netherlands?
The debate about international corporate tax avoidance continues, with many UK retailers and manufacturers calling for an end to the practice amid dire warnings that more UK business failures could follow continuing international tax competition.
The UK Prime Minister, David Cameron, has made efforts to tackle aggressive tax avoidance one of his main priorities for the UK presidency of the G8 group of the world’s largest economies.
However, in a little-noticed development, a head-to-head seems to be developing between the UK and the Netherlands which is not a member of the G8. In an open letter sent by the Dutch Finance Minister to the Dutch Parliament, the Dutch Finance Minister explicitly recognises that setting up or shifting real economic activities to low-tax jurisdictions is a legitimate way of reducing taxes.
With the Netherlands - a substantial European economy with a very wide range of double taxation agreements that is hugely dependent on international trade - effectively reaffirming its support for the long-established status quo in corporation tax, David Cameron seems set for a bumpy ride during the UK presidency of the G8. This underscores the difficulty of making unilateral changes to the UK tax system and the need to act as part of an international consensus on the issue. There will be huge challenges in securing any such consensus.