The Swiss Kaiseraugst was very often not in the news in recent decades. In the 1970s and 1980s there was fierce public opposition to the arrival of a nuclear power plant here – after the nuclear disaster in Chernobyl, this came to an end. Not much else happened in the town of several thousand inhabitants.
See you this week. Then it turned out that the Dutch DSM will be based on paper in Northern Switzerland from next year. The company will merge with fragrance and flavoring developer Firmenich and will be Swiss from next year. DSM-Firmenich will then have two head offices: one in Maastricht and one in Kaiseraugst.
Also read: With DSM, another icon disappears from the Dutch business community
The announcement came as a surprise to many. It was known that DSM wanted to specialize. The materials branch had been in the shop window for a while – and found a buyer. The fact that the Limburg-based company subsequently did not go on the takeover path itself, but merged and departed from the Netherlands under the articles of association, did lead to surprise.
DSM is not the first icon from the Dutch business community to choose a different country of residence in recent years. First there was Unilever, which finally decided to settle in London in 2020. Last year, oil company Shell followed. Both companies had one leg in the UK and one in the Netherlands.
So now DSM is also following, although that is a different story than Shell and Unilever. After the acquisition of Firmenich, DSM will supply both the new directors (the current CEO duo of DSM, Geraldine Matchett and Dimitri Vreeze) and the new chairman of the supervisory board (Thomas Leysen). To straighten the balance a bit, DSM has its registered office in Kaiseraugst, in the canton of Aargau.
DSM itself claims that taxation played no role in the decision to move its head office to Switzerland. Still, the move is remarkable. DSM would not be the last company to look abroad. Has the Netherlands become less attractive to large companies?
Tax differences smaller
Such a decision almost never starts with just a tax incentive, experts say. The business climate, the reason for a company to want to establish itself in a certain country, consists of more than just taxes. Take the education level of the population, the reliability of a government, the political climate, the infrastructure. In the case of DSM, those in Switzerland are at least as good as in the Netherlands.
From a fiscal point of view, too, the differences have narrowed in recent years. Under pressure from the OECD, the club for developed economies, efforts have been made in recent years to introduce a minimum income tax rate. That was set at a minimum of 15 percent last year. Companies that establish themselves in countries that charge less, run the risk of additional tax assessments in countries where they have their customers, for example. The sharp edges of fiscal competition, the race to the bottom, have since faded, although the minimum rate has yet to actually be introduced in many countries.
For DSM, the move to Switzerland probably does not make much of a material difference. The profit tax rate is even slightly higher than in the Netherlands, but on balance the new DSM-Firmenich combination will probably pay the same, or slightly less, tax in Switzerland. Only the Dutch treasury is missing out on several tens of millions in dividend tax.
However, business tax experts agree that taxation may also have played a role in DSM’s decision. Professor of Tax Law Jan van de Streek of Leiden University, for example, says that a lot has changed in this regard in the Netherlands in recent years: “It started around the turn of the century, when the Netherlands was forced by the European Commission to phase out a number of favorable regulations. . At the time, the Netherlands only did that sparsely, but things have gone fast since the OECD started the debate on tax avoidance in 2013. Van de Streek mentions, among other things, the steady increase in corporate income tax for companies, for example by limiting the interest deduction for companies and recently the failure of the promised abolition of dividend tax for multinationals.
Daniël Smit, associate partner at the EY consultancy and endowed professor of Taxation of the Digital Economy at the UvA (a chair established with the support of EY), agrees with Van de Streek. “The promised tax relief for businesses has not materialized, in fact, the profit tax has been increased. And even now that the government has a gap in the budget, the large business community is first being looked at to close that.”
Viewed in this way, the accumulation of austerity measures and unfulfilled promises in the Netherlands is not the best basis for binding companies to you. “If there comes a natural, commercial moment to decide where you want to settle, then the sentiment can certainly play a role,” says Smit.
Another factor is that Switzerland and the UK are countries that are geographically within Europe, but that are not legally part of the European Union. This means that they can partly evade the increasingly strict European tax rules. Van de Streek: “You hear that a lot from the tax lobby: Europe is pricing itself out of the market without tackling countries like Switzerland. That lobby is exaggerated, because Europe has taxed Switzerland considerably in the past decade. Under pressure from Brussels, the Swiss cantons have had to abolish tax concessions.”
According to Smit, the tax rules for companies within the EU have become increasingly strict and “they are really being complied with. Countries beyond have more freedom, and that is a thorn in the side of the Commission.” The European Commission is trying to get countries like the UK and Switzerland to join in the tightening, but there are hardly any real means of forcing them. In extreme cases, the Commission could blacklist the UK and Switzerland as tax havens, but that is an extremely severe sanction.
Fourth big departure coming up
Smit expects that the tightening within the EU and OECD will increase the pressure on countries to become more attractive for business in other ways. “Many tax subsidies in the form of deductible items fall within the definition of the new minimum rate, so they will be used less. However, direct subsidies, for example for sustainability or innovation, are possible. This indirectly reduces the tax burden for companies through subsidies,” he says. Aargau, the canton where DSM will now establish itself, announced two years ago that it wanted to offer innovative companies many facilities. DSM and Firmenich rely to a large extent on patents and therefore most likely make extensive use of innovation subsidies.
The fact is that countries will always continue to look for and find ways to distinguish themselves and to be attractive to multinationals, according to the government. Minister Micky Adriaansens (Economic Affairs, VVD) initially says that he is pleased that DSM will continue to have a ‘plenty of presence in the Netherlands’, but also hears ‘increasing concerns’. “For example, about the shortage of staff and space. But also about the development of our tax system, access to finance and the stability and predictability of government policy.” The cabinet is “working on that”.
This is also urgently needed, says tax expert Smit: “Ten to fifteen years ago it was really unthinkable that companies such as Shell, Unilever or DSM would remove their head office from the Netherlands. But now no one in the tax advisory practice is really surprised.” Van de Streek: “Many Dutch multinationals are attached to the Netherlands. Without a good business reason there is no reason to move your head office purely for tax reasons. The possibilities within the Netherlands are still ample for this, but it is possible in the mix of considerations.” He cites Philips as an example. It now has the largest part of its sales market (medical equipment) in the United States. That can be a reason to start thinking about leaving the Netherlands. “And then there is much less tax reason to stay than there used to be.”
Smit from EY thinks that the departure of DSM will not be the last. “I wouldn’t be surprised if number four follows,” he says. He does not say who and when.