The Netherlands as a Tax Haven

The Netherlands as a Tax Haven

More and more, tax evasion is being discovered. But this phenomenon is worldwide still a big problem. For example, in the last year, the Panama papers came to light and they caused a lot of fuss in the tax world. Also, more and more multinationals are being associated with tax fraud. In the tax world, the Dutch do not have a very good reputation. Big multinationals such as BP and Google lead their taxes through the Netherlands because the Dutch tax system has many loopholes. How does it come that tax evasion is so easy for big multinationals? Below this, you find a short movie about why the paying of taxes is so important for everyone.

As said it is very important to prevent tax evasion. If this does happen, there is a possible way that individuals have to pay higher bills, while the multinationals are exempted from taxes. This crooked settlement works as the following; Big multinationals are often settled in lots of different countries. By shuffling with their gross margin and dividends they can befool the tax authorities. This way, it isn’t very sure what the exact amounts are, so smaller amounts can be booked than the real margins of the company. In this way everything seems right at the tax authority, but in fact is has been a game of business economics. By shuffling their margins, yearly 150 billion of taxes is missed by the governments, while it is fully legal.

Why is the Dutch system this attractive for tax evaders? One of the reasons is the participation exemption. According to this regime, under certain conditions, dividend payments and capital gains from subsidiary companies are exempted from Netherlands corporate income tax in the holding company. The logic of the exemption is said to be ‘based on a combination of the idea of not taxing profits twice in the corporate tax sphere and the idea of treating a group as one whole. But when the holding company shifts its profits to the subsidiary company, there will be no taxes at all.

Another reason is called the double taxation treaty network. Note that under the terms of the EU Parent-Subsidiary Directive, if a country owns 25% or more of the shares of another EU company and meets other conditions, dividend withholding tax is fully cancelled if the subsidiary company is located in an EU country. This means that the Dutch tax treaty network is mainly beneficial for dividend payments from non-EU countries to the Netherlands. Apart from low dividend withholding tax rates, tax treaties usually also eliminate withholding tax on interest and limited withholding tax on royalties to between 0% and 15% in most cases. In comparison, most countries apply a withholding tax rate for royalties of around 30%.

The last advantage of the Dutch tax system are the so-called tax rulings. Rulings are agreements from the tax authorities on how much will be taxed, given the method of profit calculation between the business unit in the Netherlands and the other members of the group. In the Netherlands, it is almost always possible to consult with the tax authorities in advance about the fiscal consequences of a proposed conduit structure, providing maximum security and minimum risk in tax planning.

Now you know some more about the Netherlands as a tax haven, you can try these tricks on your own. But first, build a big multinational so you can trick the government. 😉

In the articles below you can find some more reasons why the Netherlands is so easy for tax evaders.

http://ec.europa.eu/taxation_customs/business/company-tax/anti-tax-avoidance-package_en http://www.oxfamnovib.nl/Redactie/Downloads/Rapporten/Nederland_belastingparadijs.pdf http://www1.fee.uva.nl/creed/pdffiles/taxevasion.pdf https://www.theguardian.com/business/2011/oct/19/tax-avoidance-in-netherlands-becomes-focus-of-campaigners

 

Koen Salet
Koen Salet

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