The Mailbox of Southern Europe

Many multinationals from Southern Europe have found the Dutch route to tax avoidance. Through letterbox firms established here by, amongst others, Zara and Fiat, large companies from Southern Europe evade the tax authorities.Image

Large companies from Southern Europe are using Dutch mailbox firms to avoid the payments of taxes. Over half of Italian, Greek, Spanish and Portuguese multinationals have a shell company established in the Netherlands. Most of these letterbox companies were registered in the Netherlands after the year 2000.

This is one of the conclusions of research done by de Volkskrant which looked at the 83 companies from Italy, Portugal, Spain and Greece that are part of the Forbes 2000 list of largest companies in the world. From the Dutch annual financial statements of these companies it was derived that 46 of these 83 companies are certain or very likely to have a special letterbox construction in the Netherlands in order to avoid taxes. Seven of these companies include the Portuguese, Italian or Spanish government as a shareholder.

The Dutch tax avoidance route allows the Southern European companies to pay less taxes over the revenues that their subsidiary firms all over the world have earned. Governments, especially those outside of the European Union, are missing potential revenues. But through this ingenious construction Portuguese, Spanish and Italian treasuries are also presumably missing out. It is impossible to determine the exact amounts using only the annual financial statements.

Portuguese companies in particular have descended in the Dutch cities these past few years. Eight out of nine large companies have a mail box firm in the Netherlands. Portugal Telecom, utility company EDP and shop operator Sonae are amongst the tax evaders.

18 out of the 34 large Italian companies employ a special tax construction in the Netherlands. 18 out of the 26 Spanish companies have a Dutch establishment. Greek companies are surprisingly absent, presumably because they a prefer a tax route that goes through Cyprus. Only 2 out of the 14 largest Greek companies have an establishment in Amsterdam.

The annual financial statements offer several clues that the mailbox firms are (legally) avoiding taxes. Most of these firms have no employed staff. The companies are channeling hundreds of millions in euros in dividends, royalties and interest through to the Netherlands, using constructions like foundations and corporations.

“In particular the Portuguese government appears to be at a disadvantage because of the Dutch tax avoidance route”, says researcher Rodrigo Fernandez of the University of Amsterdam and Somo.   “Companies are able to artificially heighten the cost levels of their subsidiary firms by charging slightly higher interests or royalties. By moving the interest levels through their subsidiary firms they are reducing their global tax output. Holland is the ideal candidate to gather capital and loan because there is no tax on outgoing interest.”

The increase of mailbox firms in the Netherlands is a negative development, according to professor Rick van der Ploeg. He thinks that tax agreements should only be used to attract companies with actual operations in the Netherlands. “Right now there is a race to the bottom, and a transition from taxing capital to taxing labor or consumption’.’  Europe needs to make better agreements regarding this, says Van der Ploeg. Spain and Portugal themselves are partly to blame for the tax avoidance, according to professor in fiscal economics Peter Kavelaars. He mentions the fact that the tax on royalties and dividends in European countries is dropping to zero. “Thanks to the numerous tax agreements the Southern European companies can now flow money through the Netherlands. Spain and Portugal, however, are entitled to make similar agreements themselves.”

Because of the worldwide reduction of taxes on royalties and dividends governments are forced to find other means of income, according to Kavelaars. “Capital is by nature very fugitive. One push on the button makes the money disappear. It is inevitable that these sources of income go down. Taxes on labor, consumption or real estate are easier to maintain.” Europe should form agreements on the minimal height of corporation tax, according to Kavelaars.

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