Taxes are the main source of income for governments, which use the money to fund general provisions. These general provisions are vitally important to NS. One example would be the rail infrastructure. NS believes it has a duty to handle taxes in a socially responsible manner. NS is a fully owned state participation and that brings particular responsibilities with it.
Our guiding principle is therefore that NS acts in accordance with tax legislation and regulations, whereby it takes account of the objectives and spirit of the law. This means that the literal text of tax legislation is not the only deciding factor. 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. NS considers this to be the case if the tax consequences of a transaction are proportionate to the commercial consequences.
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, to make sure that we are complying with the applicable tax legislation and to make use of tax incentives, for example for research and development or sustainable investments.
Relationship with the tax authorities
NS thinks it is important to have a good relationship 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. Key to this are mutual trust, understanding and transparency. Based on this covenant, NS consults with the Dutch tax authorities on issues where there could be differences of opinion. 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 Tax and Customs Administration 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. Abellio has a Customer Relationship Manager for the tax authority in the United Kingdom, for example, with which Abellio wants to discuss the current issues.
The tax department at NS has an advisory and coordinating role on tax matters for the Executive Board, the business units and the Tax and Customs Administration in the Netherlands. The department is also the point of contact on tax matters for other internal and external stakeholders. Outside the Netherlands, the tax department’s contacts with the tax authorities generally go via the local subsidiary. 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 in particular called upon to assist in the case of a complex issue or issues where there is a great deal of uncertainty.
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.
NS is transparent about its tax position. In this annual report, we show the amount of corporate income tax, payroll tax and VAT that NS pays in each country. We also report on the effective tax burden for corporate income tax and give detailed information of deferred tax assets and liabilities. Furthermore, the auditor describes its work and observations concerning the tax position and tax risks in the combined audit report.
About the lease activities
In the late 1990s, the Dutch central government decided to let regional authorities issue calls for tenders for unprofitable regional railway lines as franchises. NS realised that this plan could lead to a third of its rolling stock becoming surplus to requirements. After considering a number of alternatives, NS decided to set up its own lease company. This is because the service life of trains is longer (at an average of 30 years) than the duration of franchises (10 years on average). NS decided to run its lease activities through NS Financial Services in Ireland because of the attractive investment climate in that country. Some years later, the Dutch government decided in the light of European rail legislation to turn the service on the main Dutch rail network into a franchise as well. This meant that the rolling stock that NS uses on the main rail network was now also at risk of becoming surplus to requirements. That is why NS then started leasing new rolling stock for the main rail network through NS Financial Services.
In early 2015, NS reached an agreement with its shareholder, the Ministry of Finance, on the lease of trains from abroad. The basic principle is that NS will no longer lease trains from abroad in markets where a level playing field is guaranteed. Given that the Dutch main rail network franchise was granted to NS in a private tender, new trains for the main rail network are no longer leased from Ireland as of 2015. The agreement was also made to phase out the Irish lease portfolio for existing trains on the main rail network. This process has now been completed ahead of schedule. Given that the commercial arguments for leasing trains still apply, NS has set up a new lease company in the Netherlands that covers all the trains in the main rail network.
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 in Netherlands. Leasing trains is a commonly used approach for franchise tenders. Other public transport companies use this method.
These public transport companies, which compete with NS, do in principle have the ability to make use of foreign leasing companies within the limits set by legislation and regulations and the conditions set by the franchise authorities. In future tender procedures, such a competitive disadvantage for NS can only be avoided if a level playing field is created in another way, for example in the conditions set by the franchise authority or through legislation and regulations that makes it impossible to use foreign lease companies. In foreign franchises, NS works to achieve a level playing field by actively approaching the franchise authorities, in accordance with the agreement it made with the Ministry of Finance.