Taxes are the main source of income for governments. This income is used to fund general facilities. These general facilities are vitally important to NS. One example that could be taken is the rail infrastructure. NS believes it has a duty to deal with taxes in a socially responsible manner.
Guiding principles for the tax policy
Based on its duty to act in a socially responsible manner in tax matters, NS adopts the guiding principle that it should act in accordance with tax legislation and regulations, taking into account the purpose and spirit of the law. This means that it does not merely observe the letter of the tax law. A responsible approach to taxes means that no structures should be set up that have tax savings as their primary goal. Transactions should only take place if they serve a genuine commercial purpose. That is the case if the tax consequences of such transactions are proportionate to the commercial consequences, both in a qualitative sense (regarding complexity) and in a quantitative sense (regarding the financial impact).
NS is an organisation with a prominent role in Dutch society and whose shares are entirely in the hands of the Dutch State. Being a State participation entails special responsibilities.
For the business operations where NS is in competition with other market parties, it is important to ensure a level playing field. For example, when bidding for a competitive transport franchise, NS must be in a position to make an offer that is sufficiently attractive to be able to win the franchise when compared with the other market players. Taxes are one component of the operating costs in franchises and these costs are therefore examined closely. On the one hand, we want to make sure that we are complying with the applicable tax legislation and on the other hand we aim to make use of tax incentives, for example for research and development or sustainable investments.
Relationship with the tax authorities
NS believes it is important to have good relationships with the tax authorities in all countries where it has operations. For instance, in 2010 NS concluded a compliance covenant with the Dutch Tax and Customs Administration.
This agreement enables what is termed ‘horizontal monitoring’ of NS by the Tax and Customs Administration. The core concepts are trust, understanding and transparency. Based on this covenant, NS consults with the Dutch tax authorities on standpoints where there could be differences of interpretation. The aim is to be as up-to-date as possible so that NS has clarity at all times about its tax position. NS discusses matters with the Dutch tax authorities on a quarterly basis.
NS also takes a proactive approach to tax matters in other countries. If there is any uncertainty, the tax authorities are contacted so that agreement can be reached on important topics. In the United Kingdom, for example, Abellio has a Customer Compliance Manager at HRMC, should Abellio need to discuss current issues.
The Executive Board has a complete overview of tax matters at NS. The NS organisation is set up in such a way that all important decisions concerning tax matters are assessed by NS’s tax department and that NS complies with its tax obligations in all countries.
The NS tax department works with the Executive Board, the business units and the Dutch Tax and Customs Administration in advising on and coordinating tax matters. The department is also the first point of contact for tax matters for other internal and external stakeholders. Outside the Netherlands, the tax department’s contacts with the tax authorities are generally via the local subsidiaries. The tax department reports to the NS Finance Director. The tax department regularly makes use of external tax consultants. This is done to obtain a second opinion on important tax issues, make use of specialist knowledge, improve understanding of new tax legislation and obtain assistance when setting up and modifying tax management processes.
Abellio and NS Financial Services manage their local tax obligations via their financial departments, and hire in external consultants where necessary for tax compliance and country-specific tax issues. External consultants are called upon to assist mainly in the case of complex issues or issues where there is a great deal of uncertainty. The boards of Abellio in the United Kingdom, Abellio in Germany and NS Financial Services have a complete overview of tax affairs in the country in question and they ensure regular communication and coordination with the Executive Board and NS Tax department.
Acceptability of tax risks and risk management
NS aims to submit complete and correct tax returns on time and to pay the tax on time. However, given the extent of its operations and the associated tax obligations, common tax risks inevitably arise in its processes. NS seeks to proactively identify and manage such risks. NS also monitors the presence, setup and functioning of the control processes in accordance with its policy and procedures in the area of risk management.
The NS Executive Board has defined its risk appetite in eight thematic areas. Tax risks are covered by the themes of ‘Integrity & Compliance’ and ‘Reputation’. The risk appetite for both themes has been determined to be 'averse'. This is also deemed appropriate given NS’s duty to act responsibly in the matter of taxes.
NS documents the risks (including the tax risks) in a risk register, which is discussed regularly by the Executive Board. The control measures are also specified for each risk.
NS is transparent about its tax position. The annual report shows the amounts paid by NS in corporate income tax, payroll tax and VAT per country. The financial statements also specify the effective tax rate for corporate income tax and gives detailed information on deferred tax assets and liabilities.
About the lease activities
In the past, NS made a decision to run its lease activities through NS Financial Services in Ireland. Given that the Dutch main rail network franchise was granted to NS in a private tender, new trains for the main rail network have no longer been leased from Ireland since 2015. An agreement was also made to phase out the Irish lease portfolio for existing trains running on the main rail network. This process was completed ahead of schedule and the rolling stock was transferred from Ireland to the Dutch company.
Given that the commercial arguments for leasing trains in the Netherlands still apply, NS now has a Dutch lease company in the group that covers the trains in the main rail network. The Irish subsidiary is expected to cease its business activities in the course of 2019, after which this entity will be liquidated.
One element of the agreements with the Ministry of Finance is that new trains for bids that NS submits as of 2015 for regional lines in the Netherlands must be purchased through the Netherlands. Furthermore, it has been agreed with the shareholder that in the case of foreign operations, the guiding principle is that tax should be paid in the country of the franchise. Now that the Irish subsidiary has almost entirely been wound down, NS is operating in full accordance with these principles.