The Netherlands as Corporate Tax Haven

The Mechanisms of Multinational Tax Avoidance

By Heiner Burkard

As societies around the world are becoming more concerned about the enormous and growing wealth inequality, voices calling for higher taxes on the richest to fight the wealth gap are getting louder. Taxes appear to be the tool of choice to oblige high-net-worth individuals to contribute their fair share. Benjamin Franklin already stated that "in this world, nothing is certain except death and taxes". The idiom is still widely used to emphasise the inevitability of taxes.

But is this actually true? Are taxes really inevitable? This piece shows that taxes are not all that inevitable for the largest multinational companies. With a corporate tax rate of 25.8 per cent, the Netherlands ranks fifth among European Union member states. Even though the Dutch corporate tax rate is similar to the French and only incrementally higher than in the United States, it is known as a fiscally attractive transit country for corporations. The 2024 State of Tax Justice Report from the Tax Justice Network names the Netherlands as part of the “axis of tax avoidance” alongside Switzerland, Luxembourg and the United Kingdom.

Is the Netherlands a Tax Haven?

The distinction between tax evasion and tax avoidance is crucial here. Tax evasion is an illegal practice punishable by law. If discovered, taxes need to be paid, and prosecution follows. Tax avoidance, by contrast, is the use of loopholes, exemptions and all other gaps and options within the boundaries of the law to achieve lower effective tax burdens. Even though this is not illegal, the practice poses significant moral and political questions.

The term tax haven is hard to define. Tax havens fulfil three distinct criteria: they levy little or no taxes on corporate profits, they are not cooperative with international agreements such as sharing tax information, and they show little transparency about account holders’ financial data. Because of that, such countries are attractive for international companies to channel their profits through them to avoid taxes. The Netherlands does not strictly fulfil this classic definition, according to Maarten de Wilde, Professor of International and European Tax Law at the Erasmus School of Law. 

Nevertheless, the Netherlands plays a major role in tax avoidance because of its advantageous transit function. Roughly five trillion euros flow through the country each year, and yet only a small amount of that is taxed domestically. Around 650 million euros of that are paid as taxes to the Dutch Treasury, which amounts to 0.013 per cent. In practice, even though the tax rate is 25.8 per cent, multinationals rarely pay anything close to that in the Netherlands. The effective tax rate is often around fifteen per cent. The 2024 State of Tax Justice Report showed that a bulk of the global corporate tax abuse stems from just four member states of the Organisation for Economic Co-operation and Development (OECD): the United Kingdom, the Netherlands, Luxembourg and Switzerland. This tax haven model tends to increase inequality, undermine economic growth and the quality of tax governance.

How Does it Work?

Dutch tax advantages allow interests, royalties, and dividends to enter and leave its jurisdiction tax-free. The Netherlands has a very extensive tax treaty network, which is one of the most important structural reasons why multinationals can avoid taxes. These bilateral tax treaties with other countries include participation exemptions to prevent the same profit from being taxed twice. In practice, it can be used by multinational companies, for example from the U.S., to channel their profits to countries where taxes are low, such as Panama or the Cayman Islands. If the corporation were to transfer its profit directly from the US to Panama, it would often have to pay a considerable percentage in source taxation in the U.S. By setting up a letterbox or shell company in the Netherlands, royalties, interest and dividends are transferred through this transit point to a low-tax country. Because of the tax treaties that prevent double taxation, the multinational corporations do not have to pay a source tax. "Consequently, the profit reaches the tax haven without any tax having been paid", says Jan Vleggeert, Professor of Tax Law at Universiteit Leiden.

Who is Using the Netherlands for Tax Avoidance?

Several of the Netherlands’ largest multinational corporations operate in oil, gas, and mineral extraction, as shown in a Follow The Money analysis. This stems mainly from the significant number of tax treaties with countries that are rich in those resources. Besides those highly polluting companies, some famous names are named in the analysis.

Tesla’s European headquarters is located in Amsterdam and has raised significant concerns with the Netherlands’ tax structure. While the US parent company, Tesla Inc., generated losses for years, its Dutch subsidiary has generated profits since its inception in 2011. On paper, the Dutch subsidiary is home to a large car factory. Yet, in reality, it does not produce any cars but contracts its German sister company. According to Follow The Money, “this arrangement appears to have helped Tesla carve out significant tax advantages in the Netherlands.” The analysis showed how Tesla’s corporate structure routes billions of euros through the Netherlands while paying little to Dutch tax authorities.  

Inter IKEA Systems is a subsidiary of Inter IKEA Holding, owns the intellectual property for its products and is located in the Netherlands, while owning only one store in Delft. All other shops are franchises, paying royalties to the Dutch entity, and can enter and exit the country tax-free. The European Commission itself suspects that IKEA may also have received state aid from the Netherlands and is currently carrying out an investigation on this matter. Since 2013, Inter IKEA has been owned by a newly established foundation in Liechtenstein, a microstate known for exceptionally low taxes and financial secrecy.

Ingka Holding, the largest franchisee of IKEA with 411 stores around the world, is also based in the Netherlands, in the city of Leiden. This holding is owned by the Ingka Foundation, whose profits, in turn, are going to the IKEA Foundation, one of the largest charities in the world. Despite the philanthropic objectives of this foundation, the specific corporate structure raises ethical concerns about possible tax avoidance.

The Follow The Money analysis also names SABIC International Holding, 70 per cent owned by Aramco, the company Otra, which is part of France’s Sonepar, also Viterra, a Canadian grain trader that is now owned by Swiss trading house Glencore and Huawei. Furthermore, the holding company of pharma giant Pfizer, the Dutch computer company Dell Global, the world’s largest grain trader Louis Dreyfus, Airbus and Aramco are named as companies that used tax avoidance tactics in the Netherlands.

Is it Changing?

Recently, the Netherlands came under international criticism for its role in tax avoidance, which led to reforms. Since 2021, a withholding tax, which is a tax on payments received from abroad, has been applied to interest and royalties, and since 2024, also to dividends when channelled to tax havens. Further, letterbox companies now have to carry out actual business activities in the Netherlands. Yet, there are still exemptions and possible entitlements for refunds. 

“These measures are showing an effect [...] but they are simply not enough”, says Maarten de Wilde. He then adds: “The Netherlands can really do more to combat tax avoidance.”

The question remains if the Dutch authorities are actually serious about closing the remaining loopholes and gaps that are used to avoid taxation.

Sources: Follow The Money, Erasmus School of Law, BusinessWise, Tax Justice Network, Social Science Research Network, Tax Foundation Europe

Written by Heiner Burkard

Edited by Sarah Valkenburg and Gabrielle Ludes