Tagged: profit tax

The international tax principle should be that the profit is made in the country where the revenue is generated or where the added value is provided. Where the revenues have been generated can be determined by payment by the consumer, or by payment of the marketing addressed to a consumer. The consumer can also be a company. Whether the profit ends up in the producing or the consuming country is in principle up to the free market. That works until a supplier is a dominant player in the world market and can therefore shift profits between subsidiaries. For those situations, the money must be taxed at source, so on the consumer’s side. After all, most prices are based more on what the fool gives than what it costs to make it.

In order to close any loopholes, there must be a solid way to prevent profits from being shifted through normal costs. The so-called “transfer pricing” is the main way this is done. This means that goods are delivered on paper at cost price to a sister company in another country and are then compulsorily bought back at market value. In the country that both put the effort into production and paid for the actual sales by consumers, the proceeds of the profit are not shared. This is so obviously taking advantage of loopholes that a simple ban should suffice.
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For years, the Netherlands has explicitly or implicitly had a policy that companies should be welcome in the Netherlands because this creates employment. The result is that many companies use Dutch tax law to pay little or no tax in constructions with other countries tax laws here and in those other countries. These constructions mean that companies that make a profit in the Netherlands can also transfer this profit abroad and pay little or no tax here. You can solve a large part of this problem immediately by labeling interest and royalties as a profit distribution. Interest and royalties are often set by companies so high that they are high enough not to make a profit in the country where they sell their goods or services. This means that a large part of the royalties and interest is in fact a dividend payment. So it would be more equal if all dividends, royalties and interest were always seen as profit distribution.
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