Dutch government hits buffers on Irish subsidiary tax savings
The Dutch government has bowed to pressure and will stop using a tax efficient Irish company to buy trains.
Netherlands Railways (NS), the state-owned railway operator, will no longer buy trains through a controversial Irish subsidiary that helped save the company €250m.
Irish company NS Financial Services Company was set up in 1998 and has made hundreds of millions in profit since then. The Dutch state is the only shareholder of the company which, according to its most recent accounts, employs seven people at its Dublin base. The subsidiary buys new NS trains and then leases them to NS.
As it is based in Dublin, profits are taxed at the Irish rate of 12.5pc as opposed to the Dutch rate of 25pc. Accounts for NS Financial show that the company made a pre-tax profit of just under €114m in 2013 compared to a pre-tax profit of €120.5m in 2012.
It paid €5.45m in corporation tax for 2013 and just €16,000 in 2012. Since the establishment of NS Financial the arrangement, which is completely legal, has saved NS at least €250m due to the lower tax rate. The arrangement has been put under political pressure in recent times. In its most recent accounts NS Financial noted that its leasing activities have been "the subject of criticism by the Dutch Parliament".
The Dutch Finance Ministry has now decided to cease buying trains through the Irish company, and says that in the future it will buy all of its trains and pay corporation tax in the Netherlands.
A spokeswoman for the Dutch Finance Ministry told the Irish Independent: "The Dutch government has decided that from now on it is no longer possible for NS to buy trains that will be used in the Netherlands through its Irish subsidiary.
"New contracts from now on cannot use the Irish subsidiary."
A separate spokesman for the Finance Ministry added that the current government "believes that constructions as tax avoidance are unwanted".
A spokesman for NS Financial told the Irish Independent that the company was established "to be more competitive".
"If you pay your taxes in Ireland, which is legal, you can lower your costs and invest in services," he said. Ninety percent of existing rolling stock leasing contracts with NS Financial Services for NS and other railways will come to an end by 2024, with the remaining 10pc terminating after 2025.