El Dorado: using the Netherlands to avoid tax in

GreeceCampaigning against mailbox companies

Centre for Research on Multinational Corporations (SOMO)

ReINFORM info evening, Joe’s Garage, Amsterdam, 8.12.2013

The focus of this presentation:

1. Why bother with tax?

2. Types of business taxation and tax avoidance

3. El Dorado’s company structure and Dutch subsidiaries

4. Tax justice campaigning

5. Intervention possibilities in the Netherlands

6. Follow-up

Why bother with tax? Revenue > provide essential services and infrastructure Redistribution > of wealth from rich to poor Repricing > can stimulate e.g. ‘green’ economy and

discourage ‘unsustainable’ economic activities Representation > increases people’s say over politics

But: Corporations and wealthy individuals avoid/evade tax Corporation tax has decreased with neo-liberal reforms

Statutory Corporate Income Tax Rates (IMF, 2012)

Estimates of lost revenue

Europe: loss of income caused by tax evasion and avoidance estimated at €1 trillion per year

Developing countries: conservative estimates report losses between €660 and €870 billion (tax evasion)

Mainly through evasion and avoidance by corporations

Type of tax Tax base

Corporate income tax Tax on profits in Greece(CIT)

Withholding tax (WHT) Tax on payments of passive income from Greek subsidiary to other subsidiaries abroad (dividends, interest, royalties, and fees)

Types of business taxation (relevant to El Dorado)

Tax breaks provided by the government

Fiscal subsidy (use of government budget)

1.Reducing the tax rate / exemptionCIT: Tax holidays on corporate income tax

VAT: Exemptions on value added tax

Various: Tax free (economic) zones, special agreements

WHT: Tax treaties reducing withholding taxes on payments

2.Reducing the tax baseCIT: Accelerated depreciation

Tax ‘planning’ (profit shifting)

Term Meaning / use

Tax avoidance Legally allowed

Tax evasion Illegal

Tax planning Neutral (any of the above)

Profit shifting strategies(Apart from not declaring sales, fraud, etc.)

Manipulation of internal transactions

1.Interest payments (often also overpriced)

2.Royalty payments (often also overpriced)

3.Overpriced management fees

4.Transfer mispricing of traded goods (underpricing exports or overpricing imports)

Why?Moving money from high-tax to low-tax countries

Parentcompany

Corporate structure

Subsidiary

Holding (owns shares) / financing (through bonds/loans) / royalty (manages royalties / intellectual property)

Subsidiary

Subsidiary

Holding/financing/royalty company

MultinationalA multinational consists of a parent and many subsidiaries

Subsidiary

3 types of Dutch conduit companies

1. Financing companies (loans & interest)

2. Holding companies (capital & dividens)

3. Royalty companies (rights & royalties)

Type of tax Tax base

Corporate income tax Tax on profits in Greece(CIT)

Withholding tax (WHT) Tax on payments of passive income from Greek subsidiary to other subsidiaries abroad (dividends, interest, royalties, and fees)

Parentcompany

Dutch conduit structure

Operating subsidiary

National law (exemptions, no WHT, deductible items)

Conduit company

Tax treaties (no tax at source on outgoing payments)

No/low tax rate

Secrecy Financing company

Participation exemption

(capital gains, dividends) Tax rulings (risk-free planning)

OtherPayments to tax

havens deductible,

royalty box, etc.

No WHTInterest, royalties, most

dividends

Low/no tax rate

Normal tax rate

Dutch El Dorado subsidiariesName Assets

(mUSD)Staff Function

Eldorado Gold (Netherlands) B.V.

447 0 Financing Hellas Gold (Greece) by shareholding and bond subscription. Partly financed by Barbados subsidiary.

Eldorado Gold (Greece) B.V.

426 0 Financing Hellas Gold (Greece) by shareholding and bond subscription. Partly financed by Barbados subsidiary.

Eldorado Gold Cooperatief U.A.

25 2 Financing of Greek subsidiary (Eldorado Thrace) by shareholdings and by minority shareholdings in Swedish and Australian subsidiaries.

Deva Gold (Barbados) Ltd.

12 n/a Financing of Romanian subsidiaries through shareholdings and loans

SG Resources B.V. 173 0 Financing of Turkish subsidiaries through shareholdings

Greater Pontides Exploration B.V.

6 0 Financing of Turkish subsidiaries through shareholdings

Hella Gold SA

(Greece)

El Dorado: profit shifting through interest

Barbados Financing Ltd.

El Dorado Cold Corp (CA)

El Dorado Gold (Greece) BV (NL)

Loan

Policy enabling this:• 2001-present: 10% Dutch tax

treaty• 2009: EU Interest & Royalty

Directive• Other Dutch fiscal advantages

25% CIT

El Dorado Gold (Netherlands) BV

(NL)

Interest

LoanUntil 2011:35% WHT

Greece

Canada

2.5% CIT&

exemptions

2001: European Goldfields (NL)

Interest

El Dorado’s gain - Greece’s loss Withholding tax on all outgoing payments that Greece

has missed since Hellas Gold SA has been paying interest to a Dutch company rather than a Canadian company.

Foregone CIT on the profits that have been artificially reduced by interest payments to NL for bond loans: (total amount of interest deducted from Greek taxable profits and eventually collected in Barbados. This multiplied by Greek CIT is a revenue loss.

In case a shareholding in Hellas Gold SA is sold, the sales profits can be received tax exempt in NL.

Conclusion

Mailboxes allow for tax avoidance and opportunity to stop policy choices in the public interest (BITs).

What to do about it?

Examples of tax justice campaigns

UKUncut targeting Starbucks, Topshop, Virgin, Boots Cochamamba (Bolivia): 1999 water privatisation was overturned

by public protests in 2000. Companies Bechtel (US) and Edison (Italy) in private consortium demanded compensation of 25m USD (3x investment costs) using International Water Holdings BV.

ETI 2007: overturning 1995 privatisation of telecommunication company Entel (Telecom Italia), to recover majority control, negotiations initiated with ETI N.V (European Telecom International SV), fully controlled by Telecom Italia, major investor in Entel (to buy 3% of its stock. Telecom Italia threat for arbitration at ICSID.

Cochabamba water protests 2000

Solidarity action at Amsterdam trust offices

ETI solidarity

action 2008

Follow up Set out campaign strategy Company research training Publication (naming and shaming) Media campaign (journalists and social media) Political parties and parliamentary questions Civil society networks Political targets:

– Role of the Netherlands– Greek parliament– EU parliament

Follow up (2) Identify indirect and direct state support

– For example Export Development Canada; other export credit agencies and development banks (loans and subsidies)

Shareholders and investors campaign (Eerlijke Bankwijzer) Dutch Business and Human Rights Agenda (extraterritorial

obligations) OECD complaint at National Contact Point (simultaneously

in the Netherlands and Canada)– Violations of disclosure principles – Tax evasion – Human rights violation – Environmental law violations

Examples of potential targets and stakeholders

More info Campaigning & research

Tax Justice Toolkit for civil society groups (how to develop tax justice campaigns and research) http://taxjusticetoolkit.org/

Activist Tax Toolkit developed by UK Citizens Online: http://taxhaventoolkit.wordpress.com/

http://globalinfo.nl news portal on globalisation, political-economy and actions

SOMO on tax and investment protection in the Netherlandshttp://somo.nl/dossiers-en/economic-reform/trade-investment

http://somo.nl/themes-en/tax-justice

Dutch mailbox companies in BoliviaDe Dutch Connection. Wateroorlog Cochabamba en de ING, http://www.noticias.nl/de-dutch-connection

The Story of a Dutch Letterbox which Could Cost Bolivia a Fortune, http://archive.corporateeurope.org/bolivia-eti.html