Worldwide tax puzzle
Companies are increasingly operating worldwide, but tax systems are still primarily organised on a national level. For international companies this means on the one hand double taxation and an increased administrative burden, but on the other hand the opportunity to use differences between national tax rules in order to reduce their tax burden. In order to reverse this trend, States all over the world are considering to adapt their national tax rules and bilateral tax agreements. However, at the same time each State is trying to create a favourable tax climate for companies, to boost its own economy. Leiden University researchers are looking for solutions to this complex puzzle, which ultimately has an impact on every citizen, both financially and emotionally. The underlying concern is: how sustainable is the current situation, in which individuals feel that they are dutifully paying their taxes while international companies get away with paying almost nothing?
Every country has its own tax legislation. To facilitate cross-border business and avoid double taxation, countries need to coordinate their taxing rights. They do so by concluding bilateral tax treaties in which they agree which state is entitled to tax which income components. The large network of bilateral treaties is not fully able to prevent double taxation, but it also leaves considerable room for effective non-taxation. This allows multinationals to reduce the effective tax burdens on their profits, often to levels hardly exceeding zero. A common form of tax reduction is the use of letterbox companies. These companies only have postal addresses where few persons may actually work. They transfer money via the Netherlands to tax havens such as Cyprus or the Channel Islands, using the extensive Dutch network of tax treaties.
The Organisation for Economic Collaboration and Development (OECD) in Paris formulates international guidelines to increase the effectiveness of taxes on cross-border business. In addition, in 2014 the European Commission launched a number of State aid investigations into the use of tax planning structures by multinationals in Ireland, the Netherlands and Luxemburg. Leiden University takes part in this debate by organising seminars and symposiums, and through regular contact with persons working for OECD and the European Commission on international tax rules.
The International Tax Center and the Tax Law department of Leiden University have deep-rooted knowledge of these issues. Our researchers study national and international tax law from a variety of disciplines and perspectives, asking questions such as: Can the current national and international rules co-exist without leading to contradictions? How should institutions apply these rules? How should rules actually be formulated in accordance with the basic principles of the tax system? And how can organisations such as the OECD change tax rules?