Multinational companies including Yahoo! Inc. (NASDAQ:YHOO), Google Inc (NASDAQ:GOOG), Merck & Co., Inc. (NYSE:MRK) and Dell Inc. (NASDAQ:DELL) are taking advantage of the lenient policies and extensive network of tax treaties in Netherlands to divert hundreds of millions of dollars in global profits to reduce their worldwide tax bill. Netherlands emerged as the new tax haven in Europe, according to a report from Bloomberg.
Data from the Dutch Central Bank showed that multinational companies funneled €10.2 trillion in 2012 through 14,300 special financial units that only exists in papers, which is permitted by law in the country. According to the report, multinational companies use different techniques and nicknames such as “Dutch Sandwich.”
Bloomberg reported that Yahoo! Inc. (NASDAQ:YHOO) used the home of its book keeper, Reindert Doove, as headquarter of its offshore unit and took advantage of the law to move some of its profits globally, reducing its worldwide tax bill.
The European Commission said tax evasion costs the European Union (EU) approximately 1 trillion per year. The commission vowed to fight the practice and encouraged its member countries including Netherlands to create a tax-haven blacklist and adopt anti-abuse rules. The European Commission also suggested reforms to weaken the spinoff industry.
In Germany, tax authorities hunt tax evaders. Last year, they found evidence that Swiss banks are helping tax evaders hide their fortunes in the Far East.
Today, the Dutch Parliament will discuss the fairness of its tax system, and legislators from several parties vowed to remove the stain in Netherland’s reputation. Ed Groot, a parliament member from the Labour Party, which took power along with People’s Party for Freedom and Democracy in November said, “We should not be a tax haven. Both ruling parties are fed up with these so called P.O.Box companies. If they go somewhere else we are not sorry at all because they spoil the name of Holland. Otherwise you can wait for retaliation measures, and this we don’t want.”
A study conducted by SEO Economic Research in 2009 revealed that tax avoidance promoted a huge industry in Netherlands known as trust firms, which generates € I billion tax revenues and 3,500 jobs annually. Trust firms, such as Intertrust Group Holding SA and TMF Group provide high-priced mailboxes for multinational companies and non tax-related services including book keeping and payroll administration.
Jan Reint de Vos van Steenwijk, managing director of TMF Holding BV, expects the Dutch government to wait for the research report on the economic impact of the corporate service industry before taking any action on the issue.
On the other hand, Jos Peters, tax director for Merlyn Tax Solutions & Royalty Conduit Services in Rotterdam commented, “The benefits to Holland are employment, [and] high-level tax advisers. They come to us and why should we refuse this? We are not doing anything illegal or immoral.”
Dutch Parliament member, Arnold Merkies, believed the Netherlands is playing a harmful role in the world, citing that governments around the world have to cut their budget and at the same time multinational companies are avoiding taxes. “We connect the tax havens here. We have a harmful role in the world and have a responsibility toward the rest of the world.”
According to Kimberly Clausing, economics professor at Reed College in Portland, Oregon, the shifting of corporate profits into tax havens costs the United States $90 billion per year. The country is currently facing a budget deficit of approximately $1 trillion in fiscal 2013.