Tax Justice

Toespraak | 03-07-2009

Ladies and gentlemen,

Ten days ago I signed a tax information exchange treaty with Bermuda. A week or so earlier I signed a similar treaty with Luxembourg. These are just the latest additions to what is now a substantial body of treaties for the exchange of information.

In fact, the Netherlands has one of the most extensive networks of tax treaties with other countries. But why?

The answer is simple: the Netherlands has an open economy, and the economy is globalising. More and more individuals and businesses are earning income abroad. And money crosses borders easily.

Tax treaties provide transparency. This serves two purposes.

First, tax treaties prevent individuals and businesses being taxed twice on the same income in two countries. They usually give one of the two countries the right to tax certain types of income, while the other grants tax relief. That provides clarity and benefits taxpayers.

Transparency and sharing information are essential in the fight against tax evasion, fraud and money laundering. And also terrorist financing. And the treaties prevent that taxes are evaded twice!

We want the Netherlands to have a fair tax system. One in which everyone contributes to the financing of public spending according to their means.

Taxes are therefore a necessary evil: we may not like them, but we do want to preserve our public services. We want schools, roads and a good health service. We also want the government to take responsibility for these tasks. And it obviously needs money to do so.

But taxes must be levied fairly. It is unacceptable for businesses or individuals to evade taxes, just as it is unacceptable that they should pay double taxes.

The key is informal exchange of information, permitting every country to establish their own taxation in an proper fashion. With complete exchange of information and transparency, as well as a sound protection of the foundation of taxes - for instance no excessive deductions of interest – you can set up a solid system of taxation. Tax on unearned income abroad have then become an old fashioned 20th century means of protecting the foundation of taxes. They will not be necessary in a transparent 21st Century system of taxation.

Nor is it acceptable for countries to assist tax evasion. For instance, by refusing to be transparent and share information.

But such countries do exist. They enable individuals and companies to stash away large sums of money abroad. Banking secrecy makes that possible. As do certain types of legal entity such as the Liechtenstein establishment or ‘Anstalt’.

A great many other countries are confronted with the same problem.

This is why already in 1998 the OECD published a report on tax havens. It reaffirmed the importance of transparency and willingness to share information. The OECD says that every country should have agreements on exchanging information with at least twelve other countries.

The OECD has a number of lists: a blacklist, a grey list and a white list. The blacklist contains the names of countries that do not meet the requirements and have no intention of doing so. There are now no countries on that list. Then there is the grey list, containing the names of countries that are trying to improve things but have not yet fully succeeded. The white list features the names of countries that meet all the conditions.

The Netherlands has always actively contributed to this process. In 2002 it co-chaired a Global Forum working group that published a model Tax Information Exchange Agreement, or TIEA. This is now the minimum standard that every country must meet. It requires countries to provide one another with information on request, without any reservations, such as on banking secrecy. Following the G20 summit in London, four European countries that practise banking secrecy also endorsed the model agreement – Switzerland, Belgium, Austria and Luxembourg. Belgium has even said that it wants to go a step further and exchange information automatically.

So since the G20 we have really made headway. It is now clear that banking secrecy has no future. Agreements have been made on promoting transparency and the exchange of information. It has also been agreed that countries which drag their feet will face sanctions. From the beginning, I have made a firm stand for these agreements, within the OECD, the EU and the G20.

And the Netherlands have quickly started approaching countries where they suspect money is being hidden.

Last week we initialled an agreement with Belgium. We are currently negotiating with Switzerland, Cayman and the British Virgin Islands. And we have contacts with many other countries, such as Austria and Singapore.

In Europe, most countries already exchange bank information automatically. That should ultimately become standard practice for everyone.

Countries which have not yet reached that stage should make agreements and amend their legislation. But above all, they should start exchanging information. The proof of the pudding is in the eating.

The OECD cooperates with the World Bank and the IMF in the Global Tax Network. Here, an international dialogue takes place about best practices and further improvements in national taxation systems. The UN is not yet a member of this network. The Netherlands would welcome the UN as a member of the Global Tax Network. However, one should create enough leverage for the UN within the Global Tax Network that the developing countries feel that they will be heard within the Network

As you can see, we are doing everything we can internationally to end tax evasion. But we know that there is still a great deal of capital abroad on which no tax is being paid.

That is why we introduced a voluntary disclosure scheme. Tax evaders who contact the Tax Administration and pay what they owe will not face a hefty fine or criminal prosecution.

Those who do not come clean, run the risk that officials from the Tax Administration or its investigation service will one day come knocking on their doors. We are receiving more and more information about Dutch people who are trying to hide their money in foreign accounts.

I am now clamping down further. I have proposed to raise the fine for those hiding money abroad from 100 to a minimum of 300 per cent of the amount in question. Also, we will only allow tax evaders to make use of the voluntary disclosure scheme for up to two years after the date of the relevant tax return.

More and more people are using the scheme.

There was an upsurge in numbers after countries such as Switzerland, Luxembourg and Liechtenstein relaxed their banking secrecy laws. This year alone, a sum of 189 million euros has been disclosed from more than a thousand people.

Ladies and gentlemen,

Next Tuesday I’ll be in Berlin for the second high-level meeting on information exchange and transparency.

I would eventually like to see a system in which information is exchanged automatically. We know that this is a still step too far for many countries. But that is the Netherlands’ ultimate goal. For all, this is the standard in the long term.

We need to carefully monitor how the real sharing of information is progressing. I think that peer reviews are an ideal tool for achieving this.

We will eventually arrive at a situation where everyone willingly makes their contribution to society. No more and no less. We will then have a much fairer tax system.

Thank you.