The Netherlands: the place to be for foreign investors - but how long can this still last ?

the Netherlands-  "Still waters run deep"

The United States is the largest foreign investor in the Netherlands – ahead of the UK and Luxembourg – and  the Netherlands is the third largest foreign investor in the United States, after the UK and Japan.

The Netherlands is also a major and active center for international headquarters and holding companies.  At the same time there is a growing number of important and large Dutch corporations that have a global reach.

Dutch business culture can claim a long global trading tradition. Hundreds of years ago the Dutch were an impressive colonial power, especially in terms of trade and the Dutch were the first Europeans to develop formal trade with Japan, in 1609.

Today the Netherlands continues to boast an open economy with a very competitive tax system for international business. Add to that its strategic location – the Netherlands can truly call itself the gateway to Europe – in addition it has a focused Government policy to attract foreign investments.

Another incentive for business is a system of tax rulings that allows companies to map out long-term tax plans. The Dutch Revenue Service has a team that is specifically mandated to accommodate foreign investors and to issue tax rulings. These tax rulings cover all relevant taxes in the Netherlands.

In general the Dutch Revenue Service is very accessible, and rulings can usually be obtained in a relatively short period, even within weeks when necessary.  For instance, investors who decide to establish operations in the Netherlands can get certainty on the transfer pricing, the availability of certain tax breaks and the exemptions for foreign source income very quickly.

But for how long can this dream still last?  As Europe, the US, and other countries continue to face sluggish economies in the midst of extraordianarily high corporate profits, substantial accumulation of new wealth in the hands of even fewer people, and inordinate influence of corporatist approaches on democratic governance, a public backlash is growing and legislatures are beginning to notice.

Unfortunately many of the Dutch companies created by Multi-National Enterprises (MNEs) like Yahoo, Google, Merck, and Dell are so-called "sham companies" that “only exist on paper”.  In 2010 around $10.2 trillion dollars went through 14,300 of those sham companies.  The well know Merck pharmaceutical company has 54 subsidiaries in the Netherlands and routed more than 7 billion euros in royalties between 2002 and 2010 through an Amsterdam subsidiary that has no employees.

Indeed, the Netherlands, in the heart of a continent better known for social welfare than corporate welfare, has emerged as one of the most important tax havens for multinational companies.

This can not go on forever. The Dutch Labour Party (PVDA) and the  People's Party for Freedom and Democracy (VVD), which are in power now have said they are “fed up with these so-called PO Box companies". Reality is that so far they have done very little to "rock the boat".  The "groundswell", however, from a variety of sources in the Netherlands and around the EU  in calling for action is growing.

They are accusing the Dutch Government for on one hand imposing harsh austerity measures on the local population, while on the other hand providing multinationals with "legal loopholes" to avoid taxes.

How long this can still last is anyone's guess. 

EU-Digest