Dutch money flow to low-tax countries drops, but UK sees surge

Dutch companies remain important hubs for global money flows, however the flow of money from the Netherlands to countries with a low tax rate has significantly reduced over the past years. This was reported in a letter from Finance Minister Marnix van Rij to the Tweede Kamer, the lower house of the Dutch parliament, assessing efforts to curb tax avoidance. However, the figures in the letter also revealed that there is an increasing amount now directed towards the United Kingdom, NOS reported.

Multinationals transfer billions between international subsidiaries, potentially as a tax avoidance strategy, aiming to allocate funds to countries with minimal profit tax. Dutch companies typically moved about 20 to 25 billion euros to their United Kingdom counterparts in the past few year.s However, this figure tripled last year, resulting in an additional 50 billion euros being sent to the United Kingdom from roughly 180 Dutch entities. Both the Ministry of Finance and De Nederlandsche Bank (DNB), the source of these figures, told NOS they do not know the reason behind the rise.

A DNB spokesperson suggested to NOS several reasons for the increased financial transfers between the Netherlands and the United Kingdom. This includes increased interdependence, as an additional 17 billion euros also flowed from the United Kingdom to the Netherlands, and potentially increased profits from Dutch subsidiaries sent to UK parent companies. Shell’s relocation from The Hague to London in 2021 might also have played a role.

“It may also be an indication that the United Kingdom has become an intermediary to allow profits to flow to Bermuda, for example,” said Jan van de Streek, Tax Law professor at the University of Leiden.

In 2021, the Netherlands introduced a withholding tax, requiring companies to pay when transferring interest and royalties to subsidiaries in tax havens. However, this tax does not apply to money flows to the United Kingdom, which does not tax dividend payments to subsidiaries in profit tax-free countries. Van de Streek suggested some large companies might have rerouted their cash flow from the Netherlands through the United Kingdom.

The letter to Parliament revealed a decline in direct money transfers from the Netherlands to tax havens. State Secretary Marnix van Rij noted that outflows to “low-tax jurisdictions” dropped from 38.5 billion euros in 2019 to 6 billion euros in 2022, suggesting the positive impact of the newly introduced withholding tax.

However, NOS noted that this decline could primarily be attributed to Google ceasing its route from the Netherlands to Bermuda in 2019 due to new laws in the United States and Ireland. This change was evident as the outflow already reduced to 6 billion euros in 2020, a year before the Netherlands’ withholding tax was implemented.