The Netherlands is still attractive for companies and criminals to avoid tax and hide money through so-called letterbox companies, despite the approach to this. This is the conclusion of the Transition Companies Committee in an advice to the cabinet. The firms damage the reputation of the Netherlands, while they yield little from an economic point of view. The Committee therefore urges further action.

“It will take a few years before we know how much influence the previous adjustments have had against letterbox companies. But so far we can see that the Netherlands is still a major player and the flow through the Netherlands has not decreased,” says committee chair Bernard. ter Her.

In 2019, the Netherlands had 12,400 letterbox companies, with a value of around EUR 4500 billion, 5.5 times the gross domestic product. But it hardly provides extra jobs and the treasury is not filled any further with it.

Reputation of the Netherlands

For example, the Committee estimates that 3000 to 4000 jobs have been added and the tax paid by letterbox companies is less than 1 percent of total tax revenue in the Netherlands. Especially multinationals, which often have a letterbox company on the Zuidas in Amsterdam, and their tax advisers would have benefited from this.

“In the opinion of the committee, this is disproportionate to the negative effects for other countries and therefore for the reputation of the Netherlands,” the committee writes. Because the establishment of letterbox companies in the Netherlands mainly avoids tax in other countries. The committee cannot quantify how much those countries are missing out, but developing countries in particular are affected by it.

‘Transfer country’

According to chairman Ter Haar, the Netherlands is still the outsider when it comes to the rules for letterbox companies, and it is therefore plausible that companies choose the Netherlands to obtain a tax advantage.

For example, the Netherlands is in fourth place in the Tax Justice Network index for tax havens. And that is where the term ‘the Netherlands transit country’ comes from: it is not a tax haven because of the low profit tax, but because a large part of worldwide foreign investment flows through the Netherlands.

And even though the Netherlands has already taken a number of measures compared to other countries to combat tax avoidance, the committee believes that more is needed to discourage companies from setting up even more letterbox companies in the Netherlands. For example, the advice is to remove tax benefits where possible, such as with letterbox companies with few staff, and to increase administrative costs.

More transparency

But above all, there is a call for more transparency. Countries need to cooperate more so that tax authorities can find out how companies avoid tax. According to the committee, more information exchange is therefore required.

And more transparency should also lead to the prevention of money laundering, because with a letterbox company criminals can disguise their identity and hide where their money comes from. The committee therefore proposes to expand the so-called Ultimate Benifical Owner (UBO) register, which can be used to find out exactly what a company does and for what purpose.

The final report of the commission is also sent to Brussels, so that the European Commission can incorporate the advice into European legislation and regulations. Here the new cabinet will have to decide whether stricter laws and regulations will indeed be introduced.

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