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The Netherlands is Europe’s Tax Haven

In a recent report from Oxfam International 5 European states were rated among the 15 most popular tax havens worldwide. They were ranked as follows: Cyprus (10th position), Luxembourg (7th position) Ireland (6th position), Switzerland (5th position), and the Netherlands (3rd position). The same publication puts the Cayman Islands and Bermuda at the top of the countdown as long-standing tax paradises.

Oxfam’s report was prepared using information on different factors for each country, including corporate tax policy, tax incentives provided by the government, level of transparency of financial operations and participation in the initiative to counter tax avoidance internationally.

Among the countries in Europe, the Netherlands scored highest in the ranking for a tax haven. This begs the question which components of the local taxation system bring the country closer to an offshore Eden. The paper considers various characteristics including the lack of withholding taxes, the tax incentives and the proof of massive profit shifting.

Multinational companies benefit from special agreements

On one hand, the rate of the corporate income tax in the Netherlands (20 percent for income up to 200 000 EUR and 25 percent above that threshold) falls within the normal European range. On the other hand, large multinational corporations registered locally benefit from the opportunity to conclude preferential contracts with the tax authorities. These agreements allow the companies to indicate a proportion of their profit to be taxed as corporate income. This artificial base for taxation may be significantly different from the actual income of the company. So it is not surprising that world-famous musicians and brands (Johnny Walker, Walt Disney, US Steel, Boeing, U2, Rolling Stones…) are registered for tax in the country.

Reduced tax burden

The country does not collect extensive taxes on royalties and dividends. Furthermore, it provides schemes intended to optimise taxes through local shelter companies called mailbox-companies. Currently, in the Netherlands there are more than 12 000 mailbox companies channelling approximately 4 thousand billion Euros per year.

Further reduction of corporate income taxes is possible through the Dutch subsidies system (offering incentives for employment and innovation). According to Oxfam’s report one specific incentive called “innovation box” is costing the Netherlands more than 1 billion Euros per year. The sum is equal to more than 7.5% of the state budget’s total corporate tax income.

Additional circumstances contributing to the image of the Netherlands as a corporate income tax haven include, among others:

  1. no taxation on profit from particular hybrid instruments;
  2. no tests for beneficial ownership in regards to withholding tax reduction on dividends;
  3. preferential taxes for profit related to intellectual property.

The Netherlands addresses the criticisms

The country has been criticized for encouraging tax evasion. Therefore its government debated and initiated relevant changes in its national legislation in 2016, during the Dutch presidency of the EU Council. The discussed measures have not yet been enforced.

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