The EU has been fighting tax avoidance for years. A new study shows how corporations in Europe still manage to avoid taxes – for example in the case of the travel portal Booking.com.
Anyone looking for accommodation online will quickly come across one of the large hotel portals. The competition for the best offer is fierce. One of the top dogs is the Dutch portal Booking.com. Hotels and landlords offer their accommodation there – and the Amsterdam-based company earns money when someone books. It’s a lucrative business. Booking.com has been making billions from this for years.
Booking.com: Innovative when it comes to saving taxes?
Even though the services are provided anywhere in the world, Booking.com taxes a large part of the income in the Netherlands. The group uses a special tax break, the so-called “Innovation Box Tax” – which means a greatly reduced rate. “Booking.com records a large part of its income as innovation and research-related. I think that is extremely questionable,” explains Christoph Trautvetter from the Tax Justice Network. In a study that tagesschau.de available exclusively, the author analyzed the tax practices of the US giants Microsoft and Alphabet, but also those of Booking.com. The study was commissioned by Martin Schirdewan, co-leader of the Left.
Study author Trautvetter adds that Booking.com is one of the largest taxpayers in the Netherlands: “And my guess is that the tax authorities are very generous when interpreting this Innovation Box Tax and allow normal administrative expenses to pass as innovation, even though the law doesn’t say so allows,” says Trautvetter.
Tax savings “unrealistically” high
It is difficult to prove this with certainty, says Trautvetter. However, he points out that the proportion of income taxed at a reduced rate is “unrealistically” high compared to the total profit. According to Dutch tax law, only nine percent tax is due on income from innovative activities – and not the usual 25 percent in the Netherlands. Trautvetter has calculated that the average tax rate for Booking.com was 15 to 16 percent over several years. Between 2011 and 2022, the group saved almost three billion euros in taxes.
There is also another note. The parent company of the Dutch portal, Booking Holdings Inc., based in the USA, explicitly warns in its annual report from 2022 that the tax advantage may not be sustainable. It states: “Booking.com intends to request continuation of the Innovation Box Tax treatment for future periods. However, Booking.com’s request may not be approved or, if approved, the amount of the creditable tax may be reduced revenue is reduced.”
How to see the case in the Netherlands
As a professor of international and European tax law at the University of Rotterdam, Maarten de Wilde focuses on the taxation of corporate income. He emphasizes in an interview with tagesschau.de, the reduced tax rate for income from research and development is in line with international agreements – such as the industrialized nations organization OECD. “Other EU member states are also creating incentives for investment in research and development. This is not unique,” said de Wilde.
The Netherlands is particularly successful with this model because other conditions in the country are also attractive for companies. According to de Wilde, these include a well-trained workforce and great political stability. However, it is unclear what will happen with the special tax for research and development. “There is a dynamic there,” says de Wilde. In 2018, the Dutch government began to tighten the rules and sometimes increase tax rates.
Profit shifting in criticism
A look at the annual report of the parent company Booking Holdings Inc. reveals another point of criticism that concerns the taxation of large corporations. It’s about profit shifting. According to the report, both Italian and French tax authorities question whether booking.com has adequately compensated its subsidiaries in the mentioned countries. Only then does the parent company pay taxes where the income was earned. According to information from Booking Holdings Inc., so-called mutual agreement procedures are currently underway with the Dutch tax authorities. The exit is open.
Upon request, Booking.com stated that the group complies with all laws in all countries in which it operates. This includes the obligation to pay all taxes applicable to the group. Booking.com further says: “The reference to discussions with the authorities in other markets is nuanced and we have an ongoing dialogue with them. Ultimately, at Booking.com we believe in the EU’s digital single market approach to ensure fairness and consistency guarantee.”
The question of morality
Even if the profit shifting of internationally active corporations may be legal on paper, it is linked to a moral debate. Law professor Lucia Sommerer from the University of Halle-Wittenberg researches the interface between criminal law and white-collar crime. She emphasizes that large corporations benefit from a country’s infrastructure and workforce.
You can see it as legal to deduct and minimize taxes, says Sommerer: “But you can see it as morally questionable if you only enjoy the advantages that exist in a country – without also receiving the corresponding share in them to give back to the community.”
The global minimum tax can be avoided
At the international level, tax avoidance is not a new issue. After years of consultation under the umbrella of the OECD, more than 130 countries agreed on a global minimum tax in 2021. It is 15 percent and applies to internationally active companies with an annual turnover of more than 750 million euros. Law professor Sommerer describes the tax as a milestone with back doors: “In fact, it is a good approach, but there are many exceptions and workarounds.”
Tax expert Christoph Trautvetter states that the minimum tax is important, but it has not ensured that digital companies pay a fair tax rate: “If the most profitable companies in the world pay tax rates of 15 percent, while the master baker next door pays 30 percent, then they have “We still have a problem.”