NEDERLANDSE SPOORWEGEN, the state-owned railway operator in the Netherlands, was at the centre of a political row last night over the “morality” of its tax affairs. It admitted it had avoided paying at least €250 million in tax to the Dutch exchequer since 1999 – by buying its trains through an Irish subsidiary.
NS confirmed at the weekend that, because of Ireland’s beneficial tax regime, it had bought trains and made related purchases worth a total of €1.7 billion through its 100 per cent-owned Irish company NS Financial Services Company (NSFSC), between 1999 and 2011. It leased them back to the parent company, NS, for use in Holland.
Under political pressure about the arrangement, the Dutch parent company revealed it had paid an average of 9 per cent annual tax on its profits in Ireland. It would have faced 25 per cent in the Netherlands. Instead of paying tax to the Dutch exchequer, the company said it had had an Irish tax bill of about €11.5 million a year – and since 1999 had paid €94 million to the Irish exchequer.
It said the subsidiary, incorporated as an Irish company with offices at Behan House, Lower Mount Street, Dublin 2, had made profits of about €1 billion between 1991 and 2011 which had been ploughed back into the NS group.
If those profits had been taxed at 25 per cent in the Netherlands, it would have faced a bill of €250 million, angry Dutch politicians pointed out. However, an unspecified element did go back to the Dutch taxpayer as dividends on the profit paid to the Dutch government as sole shareholder in NS.
“This arrangement is perfectly legal”, a spokesman for NS said last night. “It has allowed us to remain competitive in a very tough international market. Other large transport firms also use Ireland to reduce their tax liabilities.”
The ministry of finance in The Hague confirmed it had been aware of the arrangement. State companies were free, it said, to do business abroad, assuming overseas taxes were paid. However, taxation minister Frans Weekers told the Dutch newspaper which raised the controversy in a general election context at the weekend: “Of course we would rather have seen these activities take place in the Netherlands.”
In the run-up to the election on September 12th, tax has been a contentious issue as the Netherlands faces making painful austerity budget cuts of €13 billion next year to keep its budget deficit below the euro zone limit of 3 per cent of gross domestic product.
Christian Democrat leader Sybrand van Haersma Buma condemned the NS arrangement as “showing a lack of morality on the part of the company”.
However, there was no comment from caretaker prime minister Mark Rutte’s pro-business Liberal Party. The Socialists, riding high in the polls by opposing austerity, said it was “outrageous and unacceptable”.
The leader of the Labour Party, Diederik Samsom, said while he had no doubt the arrangement was legal, it was also “not right”.
Economist Martin Holterman, an expert on Dutch railways, pointed out NS was a state-owned and run company, not a privately run enterprise. “It is playing at being a private company,” he said.
