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Dutch tax haven has 20,000 letter-box companies including U2's
By Michael Hennigan, Finfacts founder and editor
Jan 29, 2013 - 8:32 AM
|President Obama speaks to Facebook's Mark Zuckerberg in Feb 2011, Google's Eric Schmidt is in the foreground
"Nearly one-third of all foreign profits reported by US corporations in 2003
came from just three small, low-tax countries: Bermuda, the Netherlands, and
Ireland," said a White House factsheet in 2009. Like the Queen in Shakespeare's 'Hamlet' who protested that 'The lady
doth protest too much, methinks,' the Dutch government hypocritically objected
to the Netherlands being dubbed a tax haven and the White House deleted the
line. The Dutch tax haven, has about 20,000 letter-box companies and in
recent years, Facebook joined U2, the Irish rock group, to avail of the system. The
Netherlands also hosts thousands of foreign financial vehicles.
reports that a bookkeeper’s home office in Amsterdam, doubles as the
headquarters for a Yahoo! Inc. offshore unit. It says as a
deficit-strapped Europe raises retirement ages and taxes on the working class,
the Netherlands’ role as a $13tn relay station on the global tax-avoiding
network is prompting a backlash.
Bloomberg says that attracted by the Netherlands’ lenient policies and
extensive network of tax treaties, companies such as Yahoo, Google, Merck & Co
and Dell have moved profits through the country. Using techniques with
nicknames such as the “Dutch Sandwich,” multinational companies routed €10.2tn
in 2010 through 14,300 Dutch “special financial units,” according to the Dutch
Central Bank. Such units often only exist on paper, as is allowed by law.
Google, IBM and Italian oil and gas group ENI head the list of companies
using letter-box companies to cut their Dutch tax bills to between 0 and 5%, the
Volkskrant daily said last week.
According to the
Financieele Dagblad , French state companies are among those using the
Netherlands to cut their tax bills.
Energy firms EDF and GDF Suez, defence giant Thales and water firm Veolia
were cited as having recently set up financial holding companies in the
Netherlands, the paper says. The French state is said to have considerable
shareholding in all four companies.
EDF, for example, has three Dutch holding companies which 'owns' its
interests in two Polish power stations. The Netherlands does not charge the
French firm any tax on its Polish dividends, which in France would be taxed at
DutchNews.nl reported in February 2012 that
Facebook had registered a Dutch limited company based on Amsterdam's Herengracht.
But the office appeared to have been empty, giving rise to suggestions the company had
set up a letterbox company to avoid taxes.
According to the Chamber of Commerce, Facebook Netherlands BV
was registered at
Herengracht 282, a complex of temporary offices owned by the Regus group. But
Facebook did not appear on the list of companies at reception, nor did it have
a phone number
Initially, the Dutch registration said Facebook Netherlands would focus on
selling advertising space, but that had expanded into a 'financial holding
Branches of foreign corporate entities are in general terms only subject to
Dutch corporate income tax for certain categories of Dutch source income, like
Dutch real estate or a Dutch permanent establishment.
Under most tax treaties the tax liability is limited to profits attributable to
a qualifying permanent establishment. The tax rate on interest on
loans/investments by foreign holding companies is just 5%.
The 'Dutch Sandwich' has a more lurid meaning than the tax dodge that was used
for decades by individuals and corporations to transfer profits from the
European country to its Netherlands Antilles dependencies, Curaçao or Aruba, in
the Caribbean while paying a low rate of tax of about 5%.
In recent years, Google and Facebook have used the dodge by using Bermuda and
the Cayman Island where no corporation tax is levied.
Bloomberg reported in 2010 that Google’s income shifting -- involving strategies
known to lawyers as the 'Double Irish' and the 'Dutch Sandwich' -- helped reduce
its overseas tax rate to 2.4%, the lowest of the top five US technology
companies by market capitalization, according to regulatory filings in six
The tactics of Google and Facebook depend on “transfer pricing,” paper
transactions among corporate subsidiaries that allow for allocating income to
tax havens while attributing expenses to higher-tax countries. Bloomberg said
such income shifting costs the US government as much as $60bn in annual revenue,
according to Kimberly A. Clausing, an economics professor at Reed College in
Google sells or licenses the foreign rights to intellectual property developed
in the US to a subsidiary in a low-tax country. That means foreign profits based
on the technology get attributed to the offshore unit, not the parent. Under US
tax rules, subsidiaries must pay “arm’s length” prices for the rights -- or the
amount an unrelated company would.
The IP (intellectual property) is located in no-tax Bermuda where the holding
company for Google Ireland is located.
So Google and Facebook route revenues from other countries into Ireland. They
minimise the taxable profit in Ireland by Bermuda charging for the IP; the
after-tax Irish profits are transferred within the European Union to a
company in the Netherlands without giving rise to a tax liability and a transfer
from the Netherlands can be made to Bermuda or the Cayman Islands without having
to pay any tax as the Dutch do not levy any taxes on outward dividends or
Administrative expenses largely refer to royalties (or a licence fee) Google
Ireland pays it Bermuda HQ for the right to operate. The holding company for
Facebook Ireland is in the Cayman Islands.
Bloomberg reports that in 2011, a Yahoo French
sales subsidiary reported €66m of revenue, yet paid just €462,665 in income
taxes, records show.
Radio Netherlands Worldwide reported last
year that a debate was raging in the media in Portugal about Portuguese
multinational corporations which transfer their assets to accounts held in the
The debate was prompted by the decision of the parent company of supermarket
chain Pingo Doce to transfer its
shares to the Dutch-registered company Francisco Manuel dos Santos to avoid
paying taxes in Portugal.
RNW said Portuguese media have already published numerous stories about
multinationals which profit from low tax rates in the Netherlands and the
favourable effects of bilateral tax treaties.
The Guardian reported in
2011 that a 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 - - were 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 said: "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
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."
Switzerland's facilitation of personal tax
evasion has come under siege in recent years. The huge level of corporate tax
avoidance is so blatant that it is getting serious attention on both sides of
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