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News : EU Economy Last Updated: Jan 30, 2013 - 8:15 AM


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

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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.

Bloomberg 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 5%.

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 company.'

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 countries.

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 Portland, Oregon.

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 letter-box 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 royalties.

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 Netherlands.

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 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."

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 the Atlantic. 

Check out our subscription service, Finfacts Premium , at a low annual charge of €25 - - if you are a regular user of Finfacts, 50 euro cent a week is hardly a huge ask to support the service.

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