Inside Reindert Dooves’s home, 17th- century, three-story converted warehouse in suburban Amsterdam, Internet giant is avoiding taxes. bookkeeper’s home office doubles as headquarters for Yahoo! Inc. Yahoo has taken advantage of law to funnel hundreds of millions of dollars in global profits to island subsidiaries, cutting its worldwide tax bill. Arrangement illustrates Netherlands has emerged as tax haven for multinational companies. As deficit strapped Europe raises retirement ages and taxes on working class, Netherlands’ role as $13 trillion relay station on global tax-avoiding network is prompting backlash. “We should not be tax haven,” said Ed Groot, parliament member from Labor Party, which along with People’s Party for Freedom and Democracy took power in November. Both parties are “fed up with these PO Box companies,” he said. “If they go somewhere else we are not sorry because they spoil name of Holland. Otherwise you can wait for retaliation measures and this we do not want.” Attracted by Netherlands’ policies and network of tax treaties, companies such as Yahoo, Google Inc., Merck & Co. and Dell Inc. moved profits through country. Using techniques with nicknames such as “Dutch Sandwich,” companies routed 10.2 trillion euros in 2010 through 14,300 Dutch “financial units,” according to Dutch Central Bank. Units often only exist on paper. “Governments around world have to cut budgets and at same time multinational companies are avoiding taxes,” said Arnold Merkies, Dutch parliament member from Socialist Party. Merkies sent questions to state secretary for finance about Netherlands’ role in enabling tax-avoidance strategy used by Google, after Bloomberg News reported in December company had funneled almost $10 billion through Dutch shell company en route to Bermuda in 2011. Move cut company’s worldwide tax bill by $2 billion that year. Profit shifting into tax havens by corporations costs U.S. $90 billion year. U.S. faces projected budget deficit of almost $1 trillion in fiscal 2013. By routing profits through Netherlands to island havens, companies don’t have to pay taxes on payments leaving or entering country. Technology and pharmaceutical companies seek to reduce tax bills by paying royalties to license patent rights from offshore subsidiaries. Such transactions could incur cost: many developed nations impose withholding tax -- sometimes as high as 33 percent -- on royalties leaving for zero-tax locales with which they don’t have tax treaties, such as Bermuda and Cayman Islands. Netherlands doesn’t impose withholding taxes on royalties leaving country, regardless of destination. Countries either eliminate or reduce taxes when payments head to treaty partner. Netherlands’ role in facilitating tax avoidance began in late 1970s, when it started advance- pricing agreements to attract multinational companies. Under agreements, multinational companies agree to leave tiny amount of income in Netherlands to be taxed in exchange for being permitted to route profits through country. This remainder left for revenue authorities in Netherlands is known to tax planners as “Dutch Turn.” Yahoo has agreement to pay taxes equal to about 1.35 percent of unit’s total revenue. Records show Yahoo unit reported Dutch income taxes in 2009 of 1.28 million euros -- out of 101.5, million euros or .0126 in royalties it funneled through that year. In return, Yahoo can move profits to any destination without paying withholding tax. Merck, maker of diabetes drug Januvia and asthma treatment Singulair, lists 54 subsidiaries in Netherlands. From 2002 to 2010 company routed more than 7 billion euros in royalties, mostly from European sales, to Bermuda via Amsterdam. unit -- which had no employees -- was named Crosswinds to conjure image of royalties crossing in and out “like wind blowing.” One purpose of tax treaties is to prevent companies from paying tax twice in two different countries on same profit. Dell uses Netherlands to avoid paying income taxes in either place. World’s third-largest personal- computer maker avoided about $4 billion in income taxes since 2004, partly to its use of Dutch unit. Subsidiary, called Dell Global BV, paid income taxes at rate of 1/10 of 1 percent on profits of about $2 billion in 2011, most recent year for which records are available. That means unit took credit for almost three quarters of Dell’s worldwide income. That subsidiary had no employees in Netherlands. For tax purposes, Dell says unit’s profit is generated in Singapore, where it obtained income-tax holiday in 2004. Although company pays almost no income taxes in Singapore, Netherlands doesn’t impose any significant income taxes either because “avoidance of double taxation can be claimed with respect to ” profit earned in Singapore, according to Dutch subsidiary’s 2011 annual report. “You don’t want companies to pay double tax but you don’t want them to not pay any tax at all,” said Merkies, Dutch parliament member. U.S. Internal Revenue Service is seeking back taxes avoided through Dell’s arrangements. While company didn’t disclose amount in dispute, it said unfavorable outcome could have “material impact” on its financial position. Substantially all of Dell’s $14.2 billion in cash and cash equivalents is overseas, according to company filing in December. It may now have to tap that cash pile as it goes private, subjecting money to U.S. taxes. “We’ve always been clear Dell has responsibility to pay its fair share of taxes,” said Jess Blackburn, spokesman for Dell, based in Round Rock, Texas. “We operate according to all applicable laws and regulations and in accordance with letter and spirit of those laws.” He declined to respond to detailed list of questions about Dell’s tax arrangements. Last month, European Commission recommended EU members require income be subject to tax in one country before being exempt in another. Last year, representatives from Netherlands fought at least two internal EU proposals to clamp down on tax avoidance techniques. Other European countries are competing to attract multinational companies with tax inducements. Luxembourg has imitated Dutch system of conduit companies and advance tax rulings, and Switzerland offers long-term tax holidays and other incentives. Yahoo is taking advantage of Swiss tax generosity: In late 2009, company began shifting profits from its European sales into small subsidiary in Switzerland. In 2009, Dutch unit collected 101.5 million euros in royalties from around world and paid out 98.7 percent of that to Cayman subsidiary, records show. If those payments went directly from, Yahoo’s France sales arm to Cayman unit, they could trigger 33.3 percent withholding tax in France. In 2011, Yahoo French sales subsidiary reported 66,000,000 euros of revenue, yet paid just 462,665 euros or .007 in income taxes, records show. “It’s visible in public accounts in Holland these Dutch entities are not beneficial owners,” said Peters, speaking about arrangements. Yahoo recently introduced circuitous path through Netherlands to cut taxes on profits from its Asian sales: Royalties travel from Singapore, through Dooves’s house, to another subsidiary in Mauritius, tax-friendly island off southeast coast of Africa. In 2011, Dutch unit collected 110 million euros from Asian sales, before paying royalties to Mauritius subsidiary. On paper, cash remains with Dutch subsidiary, which uses it to finance operations throughout world outside U.S., said Dooves. In reality, much of it sits in HSBC Holdings bank account in London.
Posted on: Sat, 30 Nov 2013 13:27:00 +0000
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