A taxing issue

Evaluation of the Dutch government's policy on strengthening developing countries' tax systems

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Results — Evaluation of the Dutch government’s policy on strengthening developing countries’ tax systems (2012-2020)

IOB has evaluated the policies and activities of the Dutch government aimed at strengthening tax systems in developing countries in the period 2012-2020. This page contains the evaluation report and provides the recommendations and supporting evidence of the evaluation. The report builds on research conducted by IOB, as well as on sub-studies conducted by CPB, SEO, and Craig West that were commissioned for this evaluation.

Introduction

Around 2010, following the financial crisis and the growing media attention for the tax practices and ethics of multinational enterprises (MNEs), the G20 started to discuss the issue of international taxation, with the specific aim of preventing base erosion and profit shifting (BEPS) that provided tax avoidance opportunities for multinationals. This OECD/G20-led initiative also explicitly signalled issues and challenges faced by developing countries, both their need to increase tax revenues to foster long-term development as well as their inability to address issues of tax avoidance by multinationals due to their capacity constraints.

The Dutch government recognised the risks of BEPS and supported this OECD/G20 initiative. The initiative, together with capacity development provided by the Netherlands to improve tax systems in developing countries and unilateral measures introduced by the Netherlands to counter tax avoidance were the three topics that formed the Action Agenda on Policy Coherence for Development (PCD agenda), launched in 2016. In 2018, countering tax avoidance by MNEs and improving domestic resource mobilisation in developing countries were added as the twin goals of the PCD agenda.

This evaluation reviews efforts of both the Ministry of Foreign Affairs and the Ministry of Finance along the three sub-goals of the PCD agenda and the coherence between them.

Main research question

How coherent and relevant are Dutch government policies and activities on strengthening tax systems in developing countries, and what are their effects?

Recommendations

Sub-goal 1: International standards on countering tax avoidance by MNEs

The first sub-goal of the PCD Agenda aims for improved international standards on taxation of real economic activities. Working within the framework of the European Union (EU), the Dutch government aims to i) design international standards to counter tax evasion and avoidance which take account of the interests of developing countries and ii) the resulting adjustments made to its own tax policies.

Sub-goal 2: decrease MNEs’ use of the Netherlands’ tax system as a tax avoidance conduit

The second sub-goal of the PCD Agenda aims for a decrease in the use of the Netherlands as a conduit for tax avoidance in other countries, including developing countries. It is the Dutch government’s policy to strive to include anti-abuse clauses in tax treaties with developing countries and to take extra measures against financial flows to low-tax jurisdictions.

Sub-goal 3: Structural capacity building for good tax policies and tax collection in developing countries (with a focus on low-income and lower-middle income countries)

The third sub-goal of the PCD Agenda aims for providing structural capacity building for good tax policies and tax collection in developing countries.

Coherence of policies and activities under the three sub-goals