High number of shell companies detrimental to the Netherlands, says Committee
Shell companies contribute little to the Dutch economy, impose a disproportionate cost on developing countries in terms of lost tax revenue, and damage the Netherlands’ reputation. These are the principal conclusions reached by the Committee on Conduit Companies chaired by Bernard Ter Haar, which presented its final report today.
The Committee is calling on the government to ensure greater transparency about conduit companies, subject them to greater supervision and oblige them to report on their activities more. These measures would make the Netherlands less attractive to shell companies and, from being an outlier, could bring the Netherlands into the mainstream as regards its position on conduit companies.
The sector can be made more transparent by making changes to the register of ultimate beneficial owners (UBO register), which identifies the person or organisation behind these companies. Currently, conduit companies need only draw up a limited annual report. If statutory reporting requirements were brought into line with those applicable to companies that do have active business operations, it would be less attractive to set up a shell company.
On the international stage, the Committee would like to see countries agreeing to end tax advantages like the participation exemption for empty entities and actively sharing information about conduit companies. To this end, the Committee is proposing the establishment of an international UBO register.
In 2019 there were some 12,400 conduit companies in the Netherlands holding total assets of around 4,500 billion euros, which is five and a half times the size of the Dutch economy. Tax is not levied on total assets, of course; only on incoming and outgoing payments. An average of 170 billion euros flowed through conduit companies annually between 2015 and 2019. The direct employment these companies generate is limited; estimated at three to four thousand jobs. The treasury received an estimated 650 million euros from conduit companies in 2019, which amounts to 0.2% of total tax revenues.
The Committee believes that the term ‘conduit company’ as defined in existing legislation results in too narrow a conception of conduit arrangements that is at odds with the expectations of the House of Representatives, the government and the public at large. The relevant factors are whether a company has international structures, conducts transactions with related parties, has little if any real presence in the Netherlands, and has tax, financial or legal motives and/or substantial international money flows or balance sheet positions. The concurrence of a number of these elements would point to the existence of ‘conduit arrangements’ or a ‘conduit company’.