NS does a Jimmy Carr

Sometimes the most newsworthy piece of information in a newspaper report comes all the way at the end. Yesterday, for example, the Railway Gazette informed its readers that the Dutch historic railway operator NS was commissioning a couple of dozen new Sprinter trains, and that this new generation of Sprinters would actually have toilets instead of "piss bags":

NS seeks next-generation Sprinter

06 July 2012

NETHERLANDS: Bidders have been invited to prequalify for a contract to supply single-deck EMUs for national passenger operator NS. The base order would be for vehicles ‘with a total capacity of approximately 10 000 to 20 000 seats’, with deliveries commencing between October 2016 and October 2017.

The next-generation Sprinter is to be ordered in at least two train lengths, one offering 150 seats and the other between 200 and 250 seats. NS is looking for a modern appearance and ‘transparent and open interior’, with inter-car gangways to be as wide as possible and no narrower than 2 m. On-train toilets have been specified, following complaints over the lack of facilities on the current generation of Sprinter LightTrain EMUs.

Service speed will be 160 km/h, with ‘high acceleration’ a requirement as well as ‘short stopping times’ for ‘quick boarding and alighting’. The new EMUs should offer level boarding at platform height, and a level floor throughout the train ‘as much as possible’.

Potential options would see a further 17 500 to 27 500 seats delivered by 2024 depending on passenger growth and other factors. A separate spare parts agreement and/or support agreement could be part of the contract scope.

The purchasing party is Dublin-based NS Financial Services Co, a rolling stock leasing company owned by NS Group, which would lease the trains to NS Reizigers.

(My emphasis.)
What is NS doing with a Rolling Stock Leasing Company in Ireland??? 

The answer, of course, is very obvious, even if the company's website doesn't come straight out and say it. As long as the lease is structured correctly, with enough of the risk remaining in Ireland, the whole thing can be set up so as to leave all of the profits created in Ireland, where taxes are much lower than they are in the Netherlands. (12,5% vs. 25%, according to Wikipedia.) 

As a Dutch taxpayer, though, I have to wonder whether this is really what the (state-owned) NS should be doing. As a matter of corporate strategy, it makes perfect sense. And if this ROSCO-subsidiary truly operates on an open market, with  many different customers, I would not have much of an objection. But I fear that the reality is different. While I'm sure that NSFS occasionally leases rolling stock to other operators, I feel confident in predicting that it is essentially an NS financing vehicle. (For obvious reasons, NSFS does not list its customers on its website, or even its own separate financial statements.)

If that is the case, why is NS's owner - the Dutch State - letting it do something that improves the company's profitability at the expense of the Netherlands' total social welfare? After all, the tax advantage obtained works by taking € X away from the Dutch tax authorities and paying half that amount to the Irish tax man instead, which is equivalent to the Dutch tax authorities paying their Irish counterparts an annual sum of € ½ X. Clearly, that is not in the best interest of Dutch society.

The problem is that everyone is having so much fun playing company, that they're forgetting that NS is not actually a for-profit company. It is an NV, i.e. a plc, but that alone does not mean that it should have profit maximisation as its overarching corporate goal. In a plc, as in any corporation, the company's goals are whatever the shareholders say they are. And the shareholder of NS, as noted, is the Dutch State.

Now the official policy of the Dutch state with regard to the plcs it owns is actually a bit murky. In the 1990s, when we had a liberal - Gerrit Zalm - for a Finance Minister, his ministry published a policy document that essentially said that companies like NS should be regulated using ordinary regulatory instruments, which would be controlled by the relevant ministry. The Finance Ministry would vote its shares to have the company maximise profits. More recently, however, Zalm's socialist successor Wouter Bos more or less repudiated that policy, but - in typical Labour Party fashion - he neglected to say anything that was actually intelligible for any normal person. A summary of the current policy is here, which includes the statement that "corporate strategy must be consistent with the public interest".

At the end of the day, though, the relevant actors are getting much too hung up on formality. Whatever the legal niceties, NS is a government controlled entity, and if they do something that directly and blatantly conflicts with the interest of the state or with the public interest more generally, then heads should roll. So why has this Irish Rolling Stock Financing company existed since 1999?

P.S. for anyone who missed the story of Jimmy Carr's tax adventures, cf. here for a summary.