The drawbacks of being a conduit country

One World
Erasmus School of Economics

The Netherlands is enormously popular among multinationals and is often regarded as a tax haven. It is one of the world's largest transit countries for shifting profits. Economists prefer to call the Netherlands a conduit country rather than a tax haven. But what are the advantages of having the status of conduit country?

Not a classic tax haven

‘The Netherlands is not a classic tax haven: it does not have a low profit rate, the country is relatively large and profits do not really end up in the Netherlands', says Dirk Schindler, Professor of International Taxation at Erasmus School of Economics. However, this does not reduce the impact of our tax regime. On the contrary, 'the Netherlands is one of the largest conduit countries in the world that facilitates the shifting of profits and circumvents rules and taxes', says Schindler. Unfortunately, this form of tax avoidance is usually only available to multinationals. Small businesses do not have this option and have to pay the normal tax rates for businesses.

Little benefits for the Netherlands

Despite our great popularity among multinationals, this tax system adds very little to our government income. The tax revenues from multinationals only add up to a few hundred million euros in total. This is not much if you compare it to the 300 billion euros that the government raised in tax revenue in 2019. Our status also provides little employment, since the majority of foreign investments do not remain in the Netherlands. All in all, the disadvantages of the current system seem to outweigh the benefits.

Bad reputation

Another disadvantage is the effect the name of ‘conduit country’ has on the reputation of the companies based in our country. ‘It seems that the negative reputation of the Netherlands also leads to a bad reputation for companies that are based here. They are easily suspected of tax evasion,' says Schindler. This is exactly the opposite of what the tax treaties were supposed to do, namely strengthen the investment climate in the Netherlands.

Change is on the way

Nevertheless, some change is on the way. From 2021 a withholding tax on interest and royalty flows will be introduced. This means that money and royalties flowing directly from the Netherlands to a well-known tax haven such as Bermuda or the Cayman Islands will be taxed, probably by 21%.

Professor
More information

The full article from One World, 26 May 2020, can be found here (in Dutch).