Netherlands Starts Review of Multinational Tax Deals

By Natalia Drozdiak Features Dow Jones Newswires

The Dutch government on Wednesday began a review of 4,000 tax deals it has previously struck with multinationals, in a move that could impact future tax arrangements for some companies operating there and potentially the Netherlands' position as a tax-friendly jurisdiction for businesses.

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The probe comes in response to revelations from the Paradise Papers leaks, which showed that the country's tax arrangement with U.S. consumer-goods company Procter & Gamble Co. was improperly drafted. That tax deal confirmed that P&G didn't have to pay $169 million in taxes there.

P&G denied that it had avoided paying taxes.

"P&G pays all the taxes we owe, world-wide, and we comply with the letter and spirit of the law everywhere we operate," said a P&G spokesman, adding that the company sometimes seeks confirmation from governments and tax administrations that its interpretation of tax laws is correct. "This is what was done in this instance," the spokesman said.

The Netherlands' review comes as the European Union is pushing for new rules to clamp down on tax avoidance by companies. It has also launched individual investigations into tax arrangements between multinationals and member states, including one that ensnared the Netherlands. Brussels in 2015 ordered the country to recoup tens of millions of euros in allegedly unpaid taxes from Starbucks Corp. after ruling the government handed the company an illegal tax break.

Both Starbucks and the Netherlands said they would appeal the decision.

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In a letter sent Wednesday to the Dutch parliament, Deputy Finance Minister Menno Snel said he would review all of the country's 4,000 tax rulings issued since 2012 to ensure proper procedure was applied. Tax rulings are comfort letters sent by governments to multinationals to provide clarity on how a specific tax will be calculated. Such rulings are common and are only illegal if they provide companies with selective advantages over rivals.

The leaks of corporate data from a law firm, known as the Paradise Papers, showed that a sole tax inspector signed off on the arrangement with P&G, when it should have also been rubber-stamped by a Dutch tax ruling specialist.

"Failure to follow prescribed procedures is not acceptable...I have therefore commissioned to investigate the previously mentioned 4,000 rulings," said Mr. Snel in the letter, adding that he would debrief the parliament at the beginning of next year on the outcome of the probe.

The Dutch government's review is unlikely to hurt P&G, according to Marc Sanders, partner at Taxand Netherlands, a tax advisory firm. Mr. Sanders said while he believes P&G doesn't currently have any use for that tax ruling, it is still binding for the government.

While any findings from the government's probe wouldn't affect past tax payments, they could impact future tax arrangements for companies whose tax rulings were incorrectly drafted.

The Dutch deputy finance minister, in his letter, said he still wanted to ensure the Netherlands would be an attractive place to do business, although primarily for companies with "real activities in the Netherlands."

The Paradise Papers have exposed the tax dealings of corporate giants including Apple Inc. and Nike Inc., as well as business ties between Commerce Secretary Wilbur Ross and Russian President Vladimir Putin's family and inner circle.

--Sharon Terlep contributed to this article.

Write to Natalia Drozdiak at natalia.drozdiak@wsj.com

(END) Dow Jones Newswires

November 08, 2017 13:04 ET (18:04 GMT)