Stef Blok had an unenviable task for any economy minister last week: explaining how his country was about to lose one of its most high-profile multinational companies.
The decision by oil and gas group Royal Dutch Shell to end its dual corporate structure and move its tax base to the UK, after being in the Netherlands for more than a century, was a “sensitive loss” for the country, Blok told the Dutch parliament. It is particularly embarrassing for the pro-business caretaker government of Prime Minister Mark Rutte.
Shell’s decision sheds light on the shifting business environment in a country often held up as among the most open and competitive in Europe. Companies in the Netherlands are having to contend with a changing public mood that favours tighter corporate tax rules and robust measures to counter climate change, while a poll conducted by Statistics Netherlands last year showed more than 75 per cent of respondents favoured greater use of renewable energy.
“Shell’s move is not good for the Dutch business reputation,” said Ingrid Thijssen, president of the country’s confederation of industries and employers. “Headquarters of companies are where the main decisions are made. Your heart is where your home is and we are worried about the future.”
The Netherlands’ reputation for open business dates back to its position as the world’s richest trading entrepot during the 17th century. In more recent times, the country has been lauded and criticised in equal measure for providing favourable corporate tax arrangements for foreign companies, making it an attractive location for multinationals such as Nike and Starbucks.
Shell’s decision to quit the Netherlands follows the move by Unilever, another company with a historic Anglo-Dutch structure, to abandon its Dutch headquarters in favour of a single company based in London.
Brexit helped accelerate the decision of both companies to simplify dual corporate structures that became more difficult to maintain and justify to investors with Britain outside the EU.
Unilever and Shell both raised concerns over the Dutch government’s failure to follow through on a promise made in 2017 to abolish a 15 per cent withholding dividend tax. The UK does not impose the tax.
A last-ditch attempt by the caretaker government to abolish the levy, hours after Shell’s announcement, was unsuccessful after it failed to win support from opposition parties. Jesse Klaver, leader of the opposition Green Left party, said the cabinet’s attempt to scrap the tax was a sign it was being “financially blackmailed”.
Political resistance to tax breaks that would coax companies to the Netherlands or keep them there reflect growing unease over the country’s role in facilitating “aggressive tax planning”, said Jan van de Streek, professor of tax law at Leiden University.
Sweetheart tax arrangements offered by EU governments have come under increasing scrutiny in Brussels as a form of potential illegal state aid. “The general public is now more worried about tax fairness and that is causing political parties to respond,” said Van de Streek,
He highlights recent decisions to introduce a withholding tax on interest and royalties on payments to international tax havens as signs of a “major shift”. In 2020, the government also abolished a tax ruling that allowed companies such as Shell to offset foreign losses against Dutch tax, resulting in very low or no corporate tax being paid in the country.
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This move to a less accommodating tax environment has been accompanied by demands for tougher sustainability laws that have made the Netherlands a centre for green legal activism in Europe.
Shell was hit by a Dutch court decision in May requiring it to accelerate emissions reduction targets across its global operations by 2030 to meet goals set by the UN Paris climate accord.
The verdict was hailed as a big victory for claimants in the case, including Friends of the Earth Europe, which insisted Shell’s move to the UK would not allow it to escape the ruling. Shell, which has appealed against the decision, has denied that the case played a role in its thinking and said shifting to the UK was in part designed to help the company accelerate its energy transition.
Other legal rulings enforcing climate targets have also changed the business environment. The Dutch supreme court in 2019 upheld a decision that the state was failing in its duty to meet its Paris accord obligations to reduce CO2 emissions. Judges have also ruled the government has failed to take sufficient measures to hit a binding nitrogen emissions cap, forcing building projects to halt and the motorway speed limit to be cut from 130kph to 100kph last year.
Peer de Rijk, a campaigner at Friends of the Earth Netherlands, said Dutch climate activists had resorted to lawsuits as “last-ditch” measures to bring about change in a country where fragmented party politics and unwieldy coalitions made policy changes hard to achieve.
The group plans to publish a list of the country’s top-30 polluters next year to put pressure on companies to ensure their compliance with the Paris climate agreement. “We hope companies will engage but, if they keep buying time, other legal challenges will follow,” said De Rijk.
While the government has been criticised for not implementing sweeping CO2 reduction measures fast enough for green activists, some Dutch corporates are taking action. Last month ABP, the country’s largest pension fund, said it would divest from all fossil fuels, including Shell shares. Tony’s Chocolonely, the sustainable Dutch chocolate company, is one of the country’s fastest growing international brands.
Adriaan de Ruijter, a partner at CMS, a Dutch law firm, said: “Although one of our crown jewels is leaving, many Dutch companies are biting the sour apple of the green transition to reap the rewards in the long run.”
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