Often in the media the Netherlands are referred to as a Dutch tax haven. At the same time Dutch tax residents complain about the high tax rates (52% max). What is the case, in other words, how is a tax haven created in Holland?
Set up licensee or ultimate receiver
The first step is having a product or service for which is in good demand. For instance the Rolling’ stones. Their products, whether it is their music, their pictures or other merchandize, is so well in demand still, that they have a good product. But also Oil and Gas can be a good product.
The portrait rights of the band, or the receiver of the positive outcome of the transactions should become resident in a part of the world where nearly no tax will be levied over the proceeds being received. This can be the Dutch Antilles, Virgin Isles, Dubai or any other place. Please double check with the local tax advisor if the regime has not recently been changed. In this part of the world you set up a limited liability company, we refer to this limited liability company as Palm Tree Ltd.
Set up a Dutch BV company
The Palm Tree Ltd incorporates a Dutch BV company that will execute the portrait rights or the transactions. As you are living in the part of the world where nearly no tax is being levied, you cannot live at the same time in the Netherlands. This situation can be solved by appointing a Trust company in the Netherlands that manages this BV company. The sole purpose of this BV company is to collect the receipts from the licensee being executed or the transactions being done.
Moreover, the Dutch BV company immediately forwards the proceeds to the Palm Tree Ltd and has no interference at all in the transactions.
Go through BV
The situation is now that money throughout the world is collected in the Dutch BV company and forwarded to the Palm Tree Ltd. As the revenues coming in without any other activity are passed on, under Dutch corporate income tax law, the incoming and outgoing revenues are disregarded from a corporate income tax perspective. This is only possible if a margin is left behind.
Transfer pricing agreement
The margin left behind is the crucial part of the situation. This requires expert advise on transfer pricing with respect to the incoming funds, the outgoing funds and the percentage of the margin left behind. With the Dutch tax office you can make transfer price agreements and if you would like to make the Netherlands a tax haven you need to make this agreements, otherwise it could very well become a tax hell.
Critics on the go through model in the Dutch corporate income tax act have stated that this is an example of tax evasion. Basically it is not tax evasion as the flow of funds is so inefficient, it would not have been done without this tax opportunity. In other words, the Dutch tax office would not have had the margin taxed with Dutch corporate income tax if the opportunity to erase the incoming and outgoing money stream from the corporate income tax calculation was not provided.
Orange Tax Services
We offer the services of expert advise in the field of transfer pricing. We can assist you with the setup of this structure entirely, under the condition your money flow line meet the requirements set. For more information contact us.