The government of the Netherlands plans to introduce a tax on all royalties and interest, which they hope will put a stop to large movements of money, the country’s tax minister, Menno Snel, told parliamentarians earlier this month.
The new law would come into effect by no later than 2021 and the widespread practice of tax avoidance that has become known in the industry as “the Dutch Sandwich”.
EU law allows for the transfer of royalty payments without withholding taxes, but the local tax code in the Netherlands also allows companies to transfer royalty rights to offshore jurisdictions tax-free.
This allows a company that is set up in a low-corporate EU tax jurisdiction – Malta, Cyprus, Ireland, Luxembourg, Latvia, and Bulgaria – to set up a shell company as a subsidiary and transfer the “royalty rights” for consultation services that range from I.P licensing to research to an offshore, non-EU location, where it remains tax-free.
Google and others
In 2016, several large international corporations used shell companies to transfer through the Netherlands €22 billion through the Netherlands in order to avoid having to pay royalty taxes.
Google, in 2014, moved €10.7 billion through the Netherlands to Bermuda. This included Google Netherlands Holdings BV, which channelled revenue for countries outside of the United States to a Bermuda-based, Irish-registered affiliate called Google Ireland Holdings.
Despite being the legal heart of Google’s intellectual wealth, Google Netherlands Holdings had no employees and paid a tax bill of €2.8 million.