Avoiding Tax in Times of Austerity : Energias De Portugal (EDP) and the Role of the Netherlands in Tax Avoidance in Europe

There is growing concern about the negative impact national harmful tax regimes have on the domestic revenue of other countries, especially in the context of the international financial crisis and resulting austerity measures. In the EU, the tax gap resulting from tax evasion and avoidance is estimated at € 1 trillion a year.This briefing looks at the role that the Netherlands plays in reducing the tax payments of Portuguese multinational corporations (MNCs) in Portugal. FDI statistics show that the Netherlands is the largest investor in Portugal and the Netherlands receives most Portuguese investment. These capital flows are largely related to activities of Dutch mailbox companies, which enjoy tax benefits in the Netherlands. This results in the shifting of profits from Portugal to other jurisdictions and an overall reduction of companies tax payments.To illustrate how these tax benefits work, the briefing analyses the case of Portugals largest energy company, Energias de Portugal. The case of EDP in particular shows how the Netherlands makes special secret deals (Advance Pricing Agreements or Advance Tax Rulings) with foreign companies that lead to double non-taxation.The paper urges for more transparency and a review of this practice and proposes a number of policy alternatives to end the Dutch harmful tax regime. Political opportunities for tax reform at the OECD and EU level are also identified