NS does a Jimmy Carr (2)

OK, so that was quite a way to come back after my summer vacation. From this blog post here about tax evasion by the Dutch state railway company NS came this GeenStijl story, which in turn led to a ginormous article in De Volkskrant last Saturday, the short version of which is here. Result: all politicians scream bloody murder while simultaneously managing to mostly miss the point. More on that later. For now, I'd just like to bask in my glory a little longer and quote an English-language summary of the story:

From DutchNews.nl:

State-owned railway group NS uses Ireland to dodge Dutch taxes

Saturday 01 September 2012

The state-owned Dutch railway company NS has managed to cut its Dutch tax bill by at least €250m since 1999 by routing the cost of new trains through Ireland, the Volkskrant reported at the weekend.
The tax dodge means the treasury has lost out on income generated by a company it owns, the paper points out. The finance ministry, meanwhile, is said to be ‘unhappy’ about the arrangement, which it has been aware of from the beginning.
In effect, NS’s Irish subsidiary, NS Financial Services, has spent €1.7bn on new trains which it then rents to the NS in the Netherlands. None of the trains has ever been used on the Irish railways, the paper said.

Dividends

This allows the Dutch operation to avoid tax. In Ireland, railway companies have paid an average 9% tax on their profits in recent years. In the Netherlands, NS would have to pay 25% profit tax on the train rental. Some of the ‘missing’ cash does end up with the treasury in the form of dividends.
In a statement, the NS said the tax route had been developed to allow it to ‘better compete in the market’. Other large transport firms also use Ireland to reduce their tax liabilities and there is nothing illegal about this, the NS said.
The Volkskrant points out that there is effectively no competition on the Dutch railways and NS operates all intercity and most local train services.

Morals

Political party leaders were quick to react to the news. CDA leader Sybrand Buma told a Tros radio programme it showed a ‘lack of morals’. Labour leader Diederik Samsom said the NS had used a ‘bizarre construction which just is not right’, and an SP spokesman said the situation is ‘unacceptable’.
Caretaker tax minister Frans Weekers told the paper through a spokesman: 'Of course, we would rather have seen these activities take place in the Netherlands.'
Economist Martin Holterman, who is an expert on the Dutch railways, told the Volkskrant the NS is busy 'playing at being a company'. But the NS is not a company but a government service, he said. 

Just a few remarks, based on this version. (I haven't seen the original Volkskrant article yet myself.)

The tax rates are a bit iffy. The corporate documents we used did not allow us to calculate the effective rate of tax paid in Ireland. It is important to realise that the difference between Ireland and the Netherlands isn't just one of lower tax rates, but also of faster depreciation, which reduces the effective Irish tax rate for NS still further.

It is incorrect to say that there is no competition on the Dutch railways. NS has been given - without competition - the concession to operate trains on the "core network" until the mid-2020s, but there very much is competition for regional lines, where NS does not seem to be interested, and for the High-Speed connection between Amsterdam and Rotterdam. In the latter case, NS was so keen to win the tender that they increased their bid well above anything any expert deemed realistic, with the predictable result that they lost massive amounts of money and the concession had to be restructured. But that does not take away that there was competition for the award of this Fyra concession.

It is also incorrect to blame NS. They do their job as instructed: maximise profits. It is first and foremost the fault of the Finance Ministry that NS was not instructed and incentivised properly. More on this point in a later separate post.

As for my quote, I am not happy with the translation "government service". The key point is that NS is government-owned. So I would have written "a government entity" or something along these lines.

P.S. This article in the Irish Times this morning is better. However, they claim that I said that NS is "state-run", which is still not an ideal translation. The company is run independently, at arm's length from the state. That's exactly the problem, in this case.