El Dorado: using the Netherlands to avoid tax in Greece Campaigning against mailbox companies

1. El Dorado: using the Netherlands to avoid tax in Greece Campaigning against mailbox companies Centre for Research on Multinational Corporations (SOMO) ReINFORM info evening, Joe’s Garage, Amsterdam, 8.12.2013

2. The focus of this presentation: • Why bother with tax? • Types of business taxation and tax avoidance • El Dorado’s company structure and Dutch subsidiaries • Tax justice campaigning • Intervention possibilities in the Netherlands • Follow-up

3. Why bother with tax? • Revenue > provide essential services and infrastructure • Redistribution > of wealth from rich to poor • Repricing > can stimulate e.g. ‘green’ economy and discourage ‘unsustainable’ economic activities • Representation > increases people’s say over politics • But: • Corporations and wealthy individuals avoid/evade tax • Corporation tax has decreased with neo-liberal reforms

4. Statutory Corporate Income Tax Rates (IMF, 2012)

5. Estimates of lost revenue • Europe: loss of income caused by tax evasion and avoidance estimated at €1 trillion per year • Developing countries: conservative estimates report losses between €660 and €870 billion (tax evasion) • Mainly through evasion and avoidance by corporations

6. Types of business taxation (relevant to El Dorado) Type of taxTax base Corporate income tax Tax on profits in Greece (CIT) Withholding tax (WHT) Tax on payments of passive income from Greek subsidiary to other subsidiaries abroad (dividends, interest, royalties, and fees)

7. Tax breaks provided by the government Fiscal subsidy (use of government budget) • Reducing the tax rate / exemption CIT: Tax holidays on corporate income tax VAT: Exemptions on value added tax Various: Tax free (economic) zones, special agreements WHT: Tax treaties reducing withholding taxes on payments • Reducing the tax base CIT: Accelerated depreciation

8. Tax ‘planning’ (profit shifting) TermMeaning / use Tax avoidance Legally allowed Tax evasion Illegal Tax planning Neutral (any of the above)

9. Profit shifting strategies (Apart from not declaring sales, fraud, etc.) Manipulation of internal transactions • Interest payments (often also overpriced) • Royalty payments (often also overpriced) • Overpriced management fees • Transfer mispricing of traded goods (underpricing exports or overpricing imports) Why? • Moving money from high-tax to low-tax countries

10. Corporate structure Parent company Holding/financing/royalty company Subsidiary Subsidiary Subsidiary A multinational consists of a parent and many subsidiaries Multinational Holding (owns shares) / financing (through bonds/loans) / royalty (manages royalties / intellectual property) Subsidiary

11. 3 types of Dutch conduit companies • Financing companies (loans & interest) • Holding companies (capital & dividens) • Royalty companies (rights & royalties) Type of taxTax base Corporate income tax Tax on profits in Greece (CIT) Withholding tax (WHT) Tax on payments of passive income from Greek subsidiary to other subsidiaries abroad (dividends, interest, royalties, and fees)

12. Low/no tax rate Dutch conduit structure Parent company Financing company No/low tax rate Secrecy No WHT Interest, royalties, most dividends Other Payments to tax havens deductible, royalty box, etc. Participation exemption (capital gains, dividends) Conduit company Tax rulings (risk-free planning) Normal tax rate Operating subsidiary • Tax treaties (no tax at source on outgoing payments) • National law (exemptions, no WHT, deductible items)

14. Dutch El Dorado subsidiaries

15. El Dorado: profit shifting through interest Canada El Dorado Cold Corp (CA) 2001: EuropeanGoldfields (NL) El Dorado Gold (Netherlands) BV (NL) 2.5% CIT & exemptions Interest Barbados Financing Ltd. El Dorado Gold (Greece) BV (NL) Loan Loan Until 2011:35% WHT Interest Hella Gold SA (Greece) • Policy enabling this: • 2001-present: 10% Dutch tax treaty • 2009: EU Interest & Royalty Directive • Other Dutch fiscal advantages 25% CIT Greece

16. El Dorado’s gain - Greece’s loss • Withholding tax on all outgoing payments that Greece has missed since Hellas Gold SA has been paying interest to a Dutch company rather than a Canadian company. • Foregone CIT on the profits that have been artificially reduced by interest payments to NL for bond loans: (total amount of interest deducted from Greek taxable profits and eventually collected in Barbados. This multiplied by Greek CIT is a revenue loss. • In case a shareholding in Hellas Gold SA is sold, the sales profits can be received tax exempt in NL.

17. Conclusion • Mailboxes allow for tax avoidance and opportunity to stop policy choices in the public interest (BITs). • What to do about it?

19. Examples of tax justice campaigns • UKUncut targeting Starbucks, Topshop, Virgin, Boots • Cochamamba (Bolivia): 1999 water privatisation was overturned by public protests in 2000. Companies Bechtel (US) and Edison (Italy) in private consortium demanded compensation of 25m USD (3x investment costs) using International Water Holdings BV. • ETI 2007: overturning 1995 privatisation of telecommunication company Entel (Telecom Italia), to recover majority control, negotiations initiated with ETI N.V (European Telecom International SV), fully controlled by Telecom Italia, major investor in Entel (to buy 3% of its stock. Telecom Italia threat for arbitration at ICSID.

20. Cochabamba water protests 2000

21. Solidarity action at Amsterdam trust offices

22. ETI solidarity action 2008

23. Follow up • Set out campaign strategy • Company research training • Publication (naming and shaming) • Media campaign (journalists and social media) • Political parties and parliamentary questions • Civil society networks • Political targets: • Role of the Netherlands • Greek parliament • EU parliament

24. Follow up (2) • Identify indirect and direct state support • For example Export Development Canada; other export credit agencies and development banks (loans and subsidies) • Shareholders and investors campaign (EerlijkeBankwijzer) • Dutch Business and Human Rights Agenda (extraterritorial obligations) • OECD complaint at National Contact Point (simultaneously in the Netherlands and Canada) • Violations of disclosure principles • Tax evasion • Human rights violation • Environmental law violations

25. Examples of potential targets and stakeholders

26. More info • Campaigning & research Tax Justice Toolkit for civil society groups (how to develop tax justice campaigns and research) http://taxjusticetoolkit.org/ Activist Tax Toolkit developed by UK Citizens Online: http://taxhaventoolkit.wordpress.com/ http://globalinfo.nl news portal on globalisation, political-economy and actions • SOMO on tax and investment protection in the Netherlands http://somo.nl/dossiers-en/economic-reform/trade-investment http://somo.nl/themes-en/tax-justice • Dutch mailbox companies in Bolivia De Dutch Connection. Wateroorlog Cochabamba en de ING,http://www.noticias.nl/de-dutch-connection The Story of a Dutch Letterbox which Could Cost Bolivia a Fortune, http://archive.corporateeurope.org/bolivia-eti.html