Left-wing ‘exit tax’ plan risks turning the Netherlands into a pariah state

Two billion? Five billion? Think again. If Unilever wants to finally leave the Netherlands, and base itself only in the UK, then it may have to pay a vast sum for the privilege.

An “exit tax” of up to €11bn (£9.9bn) is being proposed – a sum so vast that even a company with a market value of over £100bn is likely to baulk at paying it.

As they look for ways to extract more out of companies, the Left and the environmentalists are increasingly latching onto “exit taxes” as a way of stopping what they describe as a “race to the bottom”.

And yet, that is not just wrong, it is something worse as well. It is a mistake. Sure, the Dutch can impose a tax on anyone that leaves the country if they want to. They might even succeed in forcing Unilever to stay.

In the medium term, however, they will only hurt themselves. In truth, if you want companies to base themselves in your country, the trick is to make yourself as attractive as possible, not to whack them over the head for having the temerity to leave.

It is surprising that the Dutch of all people have forgotten that – but the country will pay a high price as it relearns a few simple lessons in economics.

The saga of where Unilever bases itself has been running for decades. Its curious Anglo-Dutch structure was inherited from the 1929 merger between Lever Brothers and Margarine Unie. Dual nationality worked well enough for the first few decades, but in the last few years has become a mess of competing ambitions.

First the departed chief executive Paul Polman tried to move the base to the Netherlands, in part because our departure from the EU made London look less attractive for a multinational business. After that was scrapped, it this year decided to base itself only in the UK, simplifying a structure that had become cumbersome, controversial, and perhaps most importantly, an obstacle to the restructuring the sprawling empire – which takes in everything from Dove soap to Magnum ice cream – might well need one day soon.

The plan was for Unilever to be a purely British company. The Dutch are usually good losers, which is one of the reasons we like them so much, but they have taken this one very badly. A group of Left-wing and Green Parliamentarians have cooked up a plan for an exit tax, a massive charge on any company that tries to leave, and that has increasing support in the Netherlands.

Exit taxes have started to become very popular with governments attempting to squeeze more taxes out of their economy. Nicolas Sarkozy, the former French president imposed one on entrepreneurs fleeing France’s increasingly punitive tax regime, various US states have dallied with them, and the European Union, with depressing predictability, is looking at imposing exit fees as part of its drive to harmonise the tax base.

As governments start to search desperately for ways to plug the holes blown in their budgets by Covid-19, their popularity will only increase. Indeed, if the Dutch do impose one, it may become a template for other nations around the world.

Of course, it is possible to understand the superficial attractions of an exit tax. With capital so mobile, and with it increasingly easy to base a business anywhere, it has become very hard to tax corporations. There is always going to be somewhere with lower taxes they can base themselves. How can you stop a company from relocating somewhere more attractive when it could do so with the flick of a few buttons on a keyboard (and if we all keep working from home even, it is going to be even easier because you won’t need to worry about staff any more)? A massive charge for leaving may well be the only option.

The trouble is, an exit tax will do huge damage to any country that imposes one. Let’s leave aside for the moment the fact that the tax is almost certainly illegal under European law, and will be overruled after a few years of wrangling through the courts. Let’s leave aside as well the fact it is essentially a retrospective tax, and just about every developed country has always forbidden those on the grounds that both people and companies have a right to know what charges they will potentially face before arranging their affairs, not afterwards.

Those are all serious points. But the real problem is this: why would any business or entrepreneur want to establish itself in a country that behaves like that? Taxes might be increased anywhere, and to a level you no longer find acceptable, but you always have the option of moving elsewhere. That might be troublesome and expensive, but it is an alternative if taxes become too outrageous. The Dutch are planning to close that door. You can’t ever leave, at least not without paying a massive fine. We can tax you again and again, and there is nothing you can do about it. That is surely unacceptable. True, the government may raise a few billion. But it will lose tens and tens of billions from all the businesses that will decide to base themselves somewhere else. Is that a good trade? Not really.

In the end, the Dutch may hang on to at least half of Unilever. But they will have thrown away their reputation for fair dealing, for treating companies sympathetically, and for finding compromises between different interests.

For businesses and entrepreneurs, the Netherlands will become a pariah state, best avoided because you never know what kind of taxes it is about to slap on you. That is a very high price to pay. Even for €11bn, it is hard to believe it is worth it – and it may well turn into one of the most expensive policy mistakes of recent times.