The Covid-19 crisis has shown just how important publicly funded services are to our societies. This has been most visible in the healthcare sector, but widespread programs to financially support businesses also make up a substantial proportion of the total support given in high-income countries. These direct fiscal expenditures totaled almost 10% of GDP in Germany, the UK and the United States.
When you give it some thought, it is highly remarkable that, in times of business-driven market liberalization, enterprises are asking for government support in times of need. This is especially the case for companies that have been depleting governmental resources through tax avoidance techniques. It is estimated that each year about 40% of all multinationals’ profits are shifted to tax havens. This shifting of profits has resulted in an annual reduction of worldwide government revenue of $200 billion. UNCTAD calculated in 2015 that low-income countries lose about $100 billion each year through tax avoiding techniques.
There are a number of countries that play a key role in the global structure of profit shifting. One of the most important is the Netherlands. The Netherlands is a relatively small country (with only about 17 million inhabitants) and its geographical size is almost three times smaller than the state of New York, but it’s ranked number one in terms of incoming foreign direct investments. Its economy, aligned with its fiscal policy, is traditionally structured in such a way that Dutch companies can easily expand their businesses abroad. Taxes, for example, on international capital flows, are generally close to zero. This is not only the case for outward capital flows, but also for incoming capital flows.
