Dutch Media Raises Red Flag on Tax Structuring

September 13, 2011 Taxation in Netherlands

Dutch Media Raises Red Flag on Tax StructuringDutch business entities are now being used by most large international companies for the purposes of tax planning, with the flow of money through such structures now reaching over EUR 10 trillion.

According to new research conducted by Het Financieele Dagblad, a leading Dutch financial newspaper, the Netherlands are quickly becoming one of the most popular jurisdictions used by multinational corporations for international tax planning. The report shows that out of the 100 largest companies in the world, 80 make use of Dutch entities for tax planning.

The detailed analysis, which was published by the newspaper on September 12th, claimed that Dutch special financial institutions (BFI) are the most widely used entity in international tax structuring. By the end of 2010 nearly 13 000 such companies had been registered in the Netherlands by entrepreneurs from around the world. In the same year, the flow of cash through the BFIs had reached EUR 10 trillion, in comparison, in 2004 the figure had only stood at EUR 4.4 trillion. The authors of the report estimated that the current cash flows in BFIs are approximately 17 times larger than the Gross Domestic Product of the Netherlands.

The international acceptance and utilization of Dutch BFIs has been attributed to the practice of exploiting tax loopholes in Dutch tax legislation, and to the tax breaks offered by national tax authorities.

Despite the colossal level of funds flowing through the entities in 2007 the government of the Netherlands saw only EUR 1 billion in tax revenues collected from the BFIs, with an additional EUR 500 million arising in associated economic activity. However there is no way to gauge the cumulative tax benefits seen by multinational companies utilizing BFIs. The significant number of entities registered in the Northlands by foreign entrepreneurs purely for the purpose of tax planning gave reason for US President Barack Obama to call the Netherlands a tax haven. However, according to international analysts the Netherlands will continue to maintain adequate levels of tax controls to prevent the misuse of national entities, but will encourage large multinational corporations to move their headquarters into the Netherlands.

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