Recently, Peter Kavelaars, Professor of Economics of Taxation at Erasmus School of Economics, joined the Dutch NPO Radio 1 programme 'Money or your life'. Here, he discussed, among other things, how letterbox firms work, and who uses them.
A letterbox firm is a company set up in a country with lenient tax laws, often consisting merely of an empty office building. Although tighter regulations are reducing the number of letterbox firms in the Netherlands, many such companies remain here.
There are several reasons for setting up letterbox firms. Although it can never be said with certainty, the primary reason is tax evasion, Kavelaars said. A few years ago, the rules for letterbox firms were tightened so that they no longer enjoy certain benefits that 'real' companies do. Although it will be some time before we see the real effects of this, it is already noticeable that royalty flows, for instance, have been reduced, and with them letterbox firms.