Tuesday, May 10, 2011

Some details on five trillion Euros in annual Dutch dodges

Articles such as Jesse Drucker's U.S. Companies Dodge $60 Billion in Taxes With Global Odyssey have highlighted the role of the Netherlands in transfer pricing schemes, often involving other offshore jurisdictions like Ireland, in helping companies avoid tax. These articles provide a little detail on how the deals are done. Now, for tax and accounting wonks, the World Commerce Review is carrying a series of articles that look in far greater detail at Dutch structures (hat tip: Katrin McGauran, SOMO.)

The first article provides an introduction to the topic and an overview of hybrid entities that are key to understanding the Dutch dodges, and it includes the striking statement that there is

"an astonishing €5,000 billion which passes through the Netherlands for international tax reduction purposes per year."

The second article looks deeper into hybrid entities and things such as "the automatic hybridisation of a standard Dutch BV" whose effect is that "the Dutch subsidiary company of a Dutch parent company “ceases to exist . . . which in its turn leads to disappearing income in the Netherlands from such contracts.” With potentially huge tax consequences.

The third article looks at Dutch LLPs (Limited Liability Partnerships) and explains how "LLP’s, both Dutch and foreign, may give rise to double non-taxation, or to “double dipping” -- or to the tax deductibility of expenses in one country without income pick-up elsewhere in the group in another country.

Article Four looks at the example of a chemicals company that wants to operate in several European countries, using the Dutch system.

Article Five looks at how companies reduce their tax bills by using artificial intra-company lending constructs: so-called "Profit participating loans."

A useful series - though not for the faint-hearted.

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