Being a billionaire is even better off in the Netherlands than in the inequality mecca of America. The Netherlands has emerged as the most tax-friendly country for the super-rich, in a major new international report on tax avoidance. They sometimes pay only 20 percent of their income in tax, half of the average Dutch taxpayer.
By smartly shifting their income away from profits and stocks, the world’s richest and most multinational corporations can cut their taxes, according to a hundred researchers from the EU Tax Observatory, an organization funded by the European Union. Report to see
Millionaires and billionaires in the Netherlands were more successful at avoiding taxes in 2018 – the last year for which this data is known – than in France and the United States, countries the researchers compared with the Netherlands in a companion study. While the majority of Dutch people pay 40 percent of their income in taxes, the tax burden on the richest 5 percent is falling.
That’s one of the key findings of the Global Tax Evasion Report released on Monday: tax avoidance is common among high-income earners and large assets. And, equally important: governments facilitate this with their byzantine tax systems. Abuse is a piece.
The Netherlands plays a dual lead role in the report. Not only is the tax burden for the super rich here very low, but the Netherlands is also a hub for global money laundering from tax evaders. In 2020, multinationals transferred more money to the Netherlands than anywhere else: 170 billion euros, the same as the entire economy of North or South Holland.
The Netherlands is often not the final destination, but a convenient transit country to park money on paper. And so other countries lose billions of euros in tax revenue.
Unlike tax evasion, tax avoidance is not a violation of the law. Researchers are more positive about combating the criminal variant of evasion. As banks now automatically share and exchange data, governments are quickly mapping where previously hidden money is. As a result, the amount of untaxed wealth in tax havens has declined significantly over ten years.
According to a hundred scientists led by top French economist Gabriel Zucman, this gives hope. Accepting interruptions in tax revenues and the behavior of tax havens competing with each other with ever-lower rates are “not laws of nature, they are policy choices.”
But that’s where it all starts, the researchers write. This is because wealthy individuals and multinational corporations have begun to legally pay zero tax. They take advantage of major differences in tax systems between countries and within the same country.
How much a million euros is taxed depends not only on which country the owner of the money lives in, but also on whether it is in a savings account, a house or in company property or shares. Anyone who makes efficient use of all these differences should pay much less tax, perfectly legally. In many cases, including the Netherlands, this is possible, for example, by not paying the profits as a salary (relatively more taxed), but through a BV specially set up for this purpose (more lightly taxed).
These constructions mainly benefit the super rich and big corporations. They have the money to get tax advice and draw from assets rather than income from employment. Most employees cannot afford to have their wages paid by a company, they pay full price.
In recent years, the Netherlands has done something to tackle tax avoidance. So the Finance Ministry points out measures which have not yet been included in the figures of the new survey. For example, the current government has restricted borrowing from your own private limited company, which is one of the tax tricks, and interest and royalties are now always taxed, even if they are channeled through the Netherlands.
Shows increasing focus on tax evasion everywhere. Zucman, director of the EU tax watchdog, is living proof of this. He earned his PhD under fellow economist and countryman Thomas Piketty, writing a best-seller about the ways the super-rich funnel their money into tax havens and the data politicians use to make policy around the world. This year he won the John Bates Clark Medal, a prestigious economist prize for emerging talent.
15 percent corporate tax? That’s actually very low, says top economist Gabriel Zugman
This growing political focus on tax avoidance took a turning point in 2021. For the first time, a large group of more than 140 countries agreed to introduce a single global minimum rate of 15 percent of multinational corporations’ profits. Enthusiasm among scientists has now cooled: numerous loopholes have been built into the law.
Zucman is optimistic. As far as he’s concerned, it’s time for the next step: a global wealth tax. If such a tax were 2 percent of billionaires’ assets, it would generate 235 billion euros annually, he and his fellow researchers write.
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