Dutch masters of tax avoidance
The Netherlands is making a name for itself as the new home of the art of cutting corporate tax bills
Simon Goodley and Dan Milmo
guardian.co.uk, Wednesday 19 October 2011 19.26 BST
The small Dutch municipality of Capelle aan den IJssel struggles for a claim to fame. Slightly to the east of Rotterdam, it boasts former prime minister Jan Peter Balkenende as its most famous resident, while the former prison houses a small historical museum, the Dief en Duifhuis (“house of thieves and pigeons”).
But oddly, the town is also the base for companies such as BP Pipelines Vietnam BV and Amoco Chemical Malaysia Holding BV – subsidiaries of the oil majors that initially appear to be a long way from home.
While these Asian-sounding entities’ choice of a Netherlands base may look unorthodox, it is far from ground-breaking. Amsterdam’s Schiphol airport is home to AA Holdings Argentina BV – part of mining firm Anglo American – while a 20-mile taxi ride across the Hollandse Brug (bridge) to the east will take you to Lelystad airport, clearly the natural home of Rio Tinto’s Mali Diamond Exploration BV. Which is why, despite its standing as a sanctuary for liberals, the country is fast gaining a reputation as another type of haven.
A recent report by tax campaign group Publish What You Pay Norway found that more than a third of the subsidiaries owned by major energy and mining companies – including Shell, BP and Glencore – are based in “secrecy jurisdictions” where company accounts are not publicly available.
The report singled out the Netherlands as the second favourite such home for extractive industry companies, a tag justified by the authors on the grounds that the country does not put details of trusts on public record, require company accounts or beneficial ownership to be publicly available, nor maintain company ownership details in official records.
The report says: “Among the 358 Netherlands subsidiaries belonging to the world’s most powerful extractive industry companies are subsidiaries whose names suggest their physical assets are held in a country which is not the Netherlands.”
On the same day as the release of the PWYP Norway report, a new book called Commodities: Switzerland’s Most Dangerous Business was published by the Zurich-based NGO the Berne Declaration. It found: “There is a typical structure for aggressive tax avoidance: trading activity and [a] tax home in Switzerland, a Dutch holding company for temporary storage of global income, and one or more vehicles in tax havens for the non-transparent and final destination of profits. That’s how Trafigura paid only 0.6% tax in 2010. Measured at the standard rate, the trader saved roughly $500m between 2005 and 2010.”
Oliver Classen of the Berne Declaration said: “So why such complex structures? Obviously because the profit is worth it, because of tax savings. But why place [profits] with the parent holding company in the Netherlands and not Switzerland, with its very favourable tax exemptions for holdings? Because then you can have both: an attractive network of double tax agreements, as Switzerland lacks agreements with Brazil, Nigeria, Argentina; and the favourable taxes of Switzerland, as the Netherlands allows their holding companies to pay the big part of taxes in another country. Equipped with double tax agreements, the parent holding company can serve as a distribution platform to easily exchange money between all the different entities. Finally the profits are often placed offshore, such as in employee trusts.”
A series of other tax laws that add to the Netherlands’s allure. Koos de Bruijn, of Tax Justice Netherlands, said: “The Netherlands is an increasingly attractive location for multinationals to place holding companies, because of the tax treaties it has with over 100 countries. Along with these come the Netherlands’s famous participation exemption [exemption from taxation for a shareholder in a company on dividends received, and potential capital gains arising on the sale of shares], the absence of withholding [source] taxes on interest and royalties, the possibility of being able to conclude tax rulings [before paying tax], the use of legal co-operation and the so-called innovation box, a special fiscal arrangement designed for research and development.”
All of which has started to push the issue towards the front of the news agenda in the Netherlands, where the country’s financial daily paper, Financieele Dagblad, has published a string of articles on the topic. Furthermore, in his 2007 paper The Central Role of Dutch Financing Companies in Tax Avoidance Strategies, Francis Wezig wrote: “It turns out that many conduit constructions involve affiliates in the Netherlands. These affiliates are officially registered by the Dutch Central Bank (DNB) as special financial institutions (SFIs). According to the DNB definition, SFIs are foreign-owned and are used at least partly for fiscal reasons. The SFI register is not public … the Netherlands is the largest conduit country worldwide.”
In the US, President Barack Obama presented a series of proposals in 2009 to curb offshore tax benefits. While he did not name the Netherlands in his speech, the fact sheet distributed with it said nearly a third of foreign profits reported by such corporations in 2003 came from three low-tax countries: Bermuda, Ireland and the Netherlands.
A spokeswoman for the Dutch ministry of finance said: “Like many other countries, such as the UK, the Netherlands has a participation exemption. Dividends paid by subsidiaries to a parent company in the Netherlands are exempted under certain conditions. The purpose is to avoid economic double taxation, as the profits are already taxed at the level of the subsidiary. The participation exemption does not apply to subsidiaries that can be qualified as portfolio investments. The Netherlands has an extensive network of double tax treaties and levies no source taxation on royalties and interest. The system is fully transparent; the Netherlands has mechanisms to exchange information with more than 100 countries.”
BP, Amoco, Anglo American, Rio Tinto and Trafigura did not comment. It is believed that Mali Diamond Exploration is now a dormant company, while BP has closed its Vietnam operations.