Van Miert widens probe into ‘unfair’ company tax regimes

Date: 18/12/1997

COMPETITION Commissioner Karel van Miert is preparing to widen his scrutiny of 'unfair' company tax regimes to Belgium and the Netherlands as part of his clamp-down on disruptive measures.

Van Miert revealed at a competition conference this week that, in addition to Irish corporation tax, "other measures" in Belgium and the Netherlands were also being looked at. He said afterwards that the Belgian examination was focusing on co-ordination centres, but refused to give details of the Dutch inquiry.

However, other competition sources revealed that the Dutch probe was concentrating on the Concern Regeling, a regime for attracting multinational businesses which, according to Commission sources, gives wide discretion to tax authorities on the advantages they can offer.

Van Miert's scrutiny of such national measures demonstrates a determination to get to grips with damaging tax competition without waiting for the code of conduct pushed through by Italian colleague Mario Monti to deliver results.

European finance ministers agreed at the start of December to a code designed to prevent the introduction of damaging new tax measures and, later, to roll back those which already exist. "It remains to be seen whether this will be successful, but it is a good attempt," said Van Miert.

Coordination centres are one of Belgium's tax success stories. "Around 300 multinational groups have been attracted through coordination centres," said Phillipe Raxhon, a tax manager with accountants Deloitte Touche in Brussels.

Most of these multinationals have set up management headquarters in the country because of tax rules which allow the centres to carry out administrative, finance and treasury operations for other parts of the group at a rate which is marginally above the cost of these services.

This can result in a lot of labour intensive work being passed through the coordination centres, although they can be constructed in such a way that overall profits from them are limited and the taxes on them are minimal.

Belgian tax authorities have been scrupulous in ensuring that the coordination centres are not being misused, said Raxhon.

He added that without strict scrutiny the relationship between the multinationals and centres could easily be perverted, with the centres developing into a virtually untaxed vehicle for the group. If scrutiny was lax, cash could easily be piled up at the coordination centres by schemes such as overcharging sister companies for the services provided or charging high rates of interest on the loans they are given.

"The authorities have been very careful that the centres respect rules on the prices that are applied between the centre and its sister companies," said Raxhon.

Belgium has developed another type of tax incentive - service centres - which also carry out mostly administrative work for multinationals with marginal profits added to costs.

Service centres can be created more easily than coordination centres, which need a royal decree before coming into existence, through an agreement with tax authorities. These also establish the margins they can make on their activities, which can range from 5% to 15%.

Talks are continuing on Ireland's proposals to answer Commission concerns about the special tax measures used to attract international finance groups to the Customs House Docks at Dublin. The Irish government has ingeniously suggested ending their special status by cutting its corporate tax to 12.5% across the board.

See also Section 6.5.