Tuesday, September 13, 2011

Netherlands is a massive tax haven: new research

Guest blog by Koos de Bruijn, TJN-Netherlands
As we mentioned on our links yesterday, the Dutch financial daily Financieele Dagblad is publishing an extremely important series about the Netherlands as a conduit country for taxes, and as a treaty haven. This is based on their own original research, and will be an important marker for the future.

Here's the shocker: 80 of the world's 100 biggest companies have financing firms based in the Netherlands. Of the 20 biggest oil companies in the world, only two Chinese companies (Sinopec and China National Petroleum) are not involved in the Netherlands. Of the big players in the automobile business, only Honda and Hyundai don’t have a holding in the Netherlands.

Yesterday's main FD story carries an online breakdown of each of the top 100 companies, along with the names of their subsidiaries, and this in itself is a very useful resource.

The article, and a highly informative (in Dutch) infographic, clearly explain how the structures behind this work.

The Netherlands is an increasingly attractive location for multinationals to place holding companies, because of the tax treaties it has, with over one hundred countries. Along with these come the Netherlands' famous participation exemption, the absence of withholding taxes on interest and royalties, the possibility to conclude tax rulings, the use of legal co-operation and the so-called innovation box, a special fiscal arrangement designed for Research & Development (R & D).

Quite correcly the FD notes that the whoever calls the Netherlands a fiscal paradise, tax haven or treaty haven, will be confronted by a strong lobby from The Hague, where the Dutch government is seated. The most famous example of that, is Obama putting the Netherlands on a list of tax havens in 2009. After strong pressure from the Dutch government Obama withdrew the whole list. Read more about that here.

Today the FD continued with another article about how Dutch cooperatives are used to escape withholding taxes. In the past, cooperatives were mainly used in agricultural businesses, but nowadays the cooperative is used more and more as a fiscal structure to evade taxes.

The FD gives the example of Nike, which has used the Netherlands for tax reasons for years. In 2010 all subsidiaries were put into two cooperatives. The founding documents say these cooperatives are founded by four legal persons, of whom three are based on Bermuda and one in Delaware. With this construction Nike doesn’t pay any dividend tax, and the members of the cooperative who receive dividends have to pay no to little taxes on it. In 2006 the Chambre of Commerce counted 3834 cooperatives. This grew to 5062 in 2010.
Superb reporting by the Financieele Dagblad. For some older analysis on these things, please see also Somo's reporting in 2007. See more recent data on the sheer size of Netherlands-related flows here. See also this May 2011 reference to both Jesse Drucker's reporting on this issue, and for the more technically minded, the World Commerce Review.

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