International Tax Planning of Dutch Shell Companies (SPEs) By - - PowerPoint PPT Presentation

CPB Netherlands Bureau for Economic Policy Analysis

International Tax Planning of Dutch Shell Companies (SPEs)

By Arjan Lejour,* Jan Möhlmann, Maarten van ‘t Riet, Thijs Benschop

* Presenter, also Tilburg

university

CPB Netherlands Bureau for Economic Policy Analysis

The Netherlands: foreign investment hub!

Inward FDI position (bln US, 2016) Outward FDI position Global: 30 000 billion US$ SPEs are key: 80% of the FDI positions is on their balance sheets

17 November 2018 The Dutch SPEs and Tax Planning 2

4084 3725 3634 2535 1415 14942 NLD USA LUX CHN HKG 5332 5094 4419 1439 1385 12412 USA NLD LUX UK CHN

CPB Netherlands Bureau for Economic Policy Analysis

Data DNB

• Financial information

(balance sheet and annual results) by SPE between 2004 - 2016, with geographical information

• Largests SPEs fully

covered; smallers ones sampled

• About 1000-1500 SPEs

by year in sample

• This sample covers 10%
• f all SPEs and 2/ 3rd of

the assets

17 November 2018 The Dutch SPEs and Tax Planning 3 500 1000 1500 2000 2500 3000 3500 4000 4500 Total foreign assets (x billion euro) Sample Population

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Incoming and outgoing flows, sample, bln euro

17 November 2018 The Dutch SPEs and Tax Planning 4 20 40 60 80 100 120 140 160 180 200 2004 2009 2013 2016 Other income Royalties Payments from securities Interest from other loans Dividend from affiliates 20 40 60 80 100 120 140 160 2004 2009 2013 2016 Other costs Royalties Payments on securities Interest on other loans Dividend to affiliates

Incoming flows Outgoing flows

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Country shares by incoming flow, 2016

17 November 2018 The Dutch SPEs and Tax Planning 5

• Dividend flows come often not from the host countries of investment
• Part of interest flows can be explained by high CIT rates in origin country,

for an other part treaty shopping could be relevant

• Royalty flows are only relevant for a few countries

SGP BRA LUX USA CHE IRE SGP GER IRE USA ESP UK

Dividend Interest Royalty

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Outgoing shares by destination and ubo, 2016

17 November 2018 The Dutch SPEs and Tax Planning 6

Large flows are owned by US MNEs: to Switzerland, Luxembourg for dividend to Cayman Islands, Ireland and Luxembourg for interest to Bermuda for royalty

10 20 30 40 50 CHE UK USA LUX JPN 20 40 60 80 100 BMU USA 10 20 30 40 50 USA CAY UK IRE CHE LUX

Dividend Interest Royalty

CPB Netherlands Bureau for Economic Policy Analysis

Bilateral flows have to be constructed

17 November 2018 The Dutch SPEs and Tax Planning 7

Ai C Bj Bm An A1 B1 Multiple flows by SPE: proportional measure Multiple flow types : proportional measure Unequal incoming and outgoing flows: minimum value

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Direct tax planning gain (without US)

17 November 2018 The Dutch SPEs and Tax Planning 8

A B Large gains for royalty flows, modest gains for interest flows tax rates are weighted by the size of the flows

5 10 15 20 25 30 2009 2013 2016 Origin Interest

• Dest. Interest

Origin Royalty

• Dest. Royalty

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Tax planning gain: treaty shopping

17 November 2018 The Dutch SPEs and Tax Planning 9

C A B Treaty shopping reduces effective tax rates on royalty flows We do not find lower rates on indirect dividend flows

5 10 15 20 25 30 35 40 2009 2013 2016

dividend direct dividend via NLD interest direct interest via NLD royalties direct royalties via NLD

CPB Netherlands Bureau for Economic Policy Analysis

Regressions

17 November 2018 The Dutch SPEs and Tax Planning 10

FlowNL is bilateral dividend, interest or royalty via the Netherlands Many zero’s: Poisson, Pseudo ML Gravity and tax variables included Regressions by year: no panel About 8000 observations per year Gravity variables have expected sign (and significant) Tax haven dummies have also a positive effect on the flows

1 2 3 1 2 3 ijt it jt ij it jt ijt t ijt

Flow G G G T T T D α α α α β β β ε = + + + + + + + +

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Regressions results coefficient bilateral tax rates

17 November 2018 The Dutch SPEs and Tax Planning 11

FlowsNL interest dividend royalty 2016 2009-2016 2016 2009-2016 2016 2009-2016 difference 4.533*** 7.392*** 10.15*** 5.998*** 20.19** 24.67*** direct

• 3.140

4.133*** 2.215

• 4.065***

5.696 25.23*** indirect

• 9.823***
• 12.17***
• 14.09***
• 7.206***
• 24.26*
• 23.40***

Expect positive sign for direct bilateral tax rate Expect negative sign for indirect bilateral tax rate Expect positive sign for difference A 10%-point higher direct tax rate, increases royalty flow by 250%

CPB Netherlands Bureau for Economic Policy Analysis

Conclusions

17 November 2018 The Dutch SPEs and Tax Planning 12

• Dutch SPEs important for international diversion of financial flows

– About 200 bln euro per year › Dividend flow form the larger part

• The Netherlands is not the only conduit country in the chain

– Luxembourg, Singapore, Ireland, … . – Traditional tax havens are also involved

• A large share of these flows is ultimately owned by US MNEs
• Tax factors play a major role: A higher tax rate on the direct route

increases the flow via Dutch SPEs – Tax planning gain is in particular large for royalty flows

CPB Netherlands Bureau for Economic Policy Analysis

Assets and liabilities (sample), bln euro

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Category 2004 2009 2013 2016 Assets Affiliates 604 1263 1732 1798 Debt (including bonds) 495 837 931 969 Securities 5 86 90 96 Other assets 3 9 2 Total 1104 2189 2762 2865 Liabilities Equity by major shareholders 543 1185 1607 1716 Debt 280 579 636 681 Securities (including bonds) 298 476 449 513 Total 1121 2240 2692 2911