October 1, 2020

Dutch tax treaties and developing countries - a network analysis -

CPB analyses six tax treaties of the Netherlands with developing countries. These treaties are part of a tax network of more than 100 countries. CPB determines the tax burden on dividend, interest and royalty flows over the network and computes the impact of diversion of these flows for withholding tax revenues. This analysis is at the request of the Policy and Operations Evaluation Department (IOB) of the Ministry of Foreign Affairs.

The loss of withholding tax revenue on outgoing dividend, interest and royalties varies by country and type of income flow. For the selection of developing countries the size of the tax loss is often considerable given the use of optimal avoidance routes; 100% loss is no exception. Moreover, the shares of individual treaties in the potential loss of tax revenue indicate the prominent role of the Netherlands. In some cases the tax treaty with the Netherlands is responsible for the entire loss of the withholding tax revenue of the developing country. Other countries concluded similar aggressive tax treaties with developing countries.

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The Netherlands has a prominent role as a conduit country; Dutch tax treaties are often used in tax minimising routes over the international tax network. For four of the six developing countries holds that they may lose withholding tax revenue with the Dutch treaty as the first channel in such routes.