The Netherlands has compiled a new list of 21 low-tax jurisdictions, including the Cayman Islands, to fight tax evasion, according to the Dutch ministry of finance.
The list was published on Dec. 28 in the country’s government gazette.
It contains the five jurisdictions – American Samoa, the U.S. Virgin Islands, Guam, Samoa, and Trinidad and Tobago – that are currently blacklisted by the European Union.
In a sign that substance legislation, recently passed by several offshore jurisdictions to avoid an EU-wide blacklisting, will not be enough to appease EU member countries, the Dutch list also contains 16 low-tax jurisdictions. The only criterion for the list appears to be that these jurisdictions have a corporation tax rate of less than 9 percent or no corporation tax at all.
They are Anguilla, the Bahamas, Bahrain, Belize, Bermuda, the British Virgin Islands, Guernsey, the Isle of Man, Jersey, the Cayman Islands, Kuwait, Qatar, Saudi Arabia, the Turks and Caicos Islands, Vanuatu and the United Arab Emirates.
“By drawing up its own stringent blacklist, the Netherlands is once again showing that it is serious in its fight against tax avoidance,” said State Secretary for Finance Menno Snel in a press release. “And that’s just one of the steps we’re taking.”
The list will be applied to several measures to combat tax avoidance. From Jan. 1, 2021, companies registered in blacklisted jurisdictions will be subject to a 20.5 percent withholding tax on interest and royalties received from the Netherlands.
“With this measure, the government aims to prevent companies avoiding tax by moving mobile assets to low-tax jurisdictions,” the Dutch ministry of finance said.
In addition, Dutch tax authorities will no longer issue advance tax rulings on transactions with companies headquartered in blacklisted jurisdictions.
In its implementation of EU Anti-Tax Avoidance Directives, the Netherlands will go beyond prescribed minimum standards with stricter controlled foreign company rules and special measures to prevent earnings stripping and hybrid mismatches that attempt to exploit differences between tax systems.
The Netherlands itself has come under criticism for operating a tax haven for international corporations, which use the extensive international treaty network of the country with 150 double taxation agreements to shift profits to low-tax jurisdictions.
A recent study by government agency Statistics Netherlands found that the country had received 4.6 trillion euros (US$5.2 trillion) in “foreign direct investment” in 2017.
However, less than a fifth of that money – $836 billion – remained in the Dutch economy, while $4.2 trillion was routed through shell companies to other jurisdictions. Researchers said about a third of the money ended up in “offshore tax havens.”
In 2016, the Netherlands accounted for the third most foreign direct investment (FDI) outflows in the world, making it one of the dominant global FDI centers for multinational corporations.
IMF data, reported by academic Jan Fichtner in the Cayman Financial Review, shows that in 2015 Cayman entities received $53 billion in foreign direct investment from the Netherlands, and $49 billion were sent in the opposite direction.
In a fact sheet, the Dutch government acknowledged that its tax system was open to abuse.
“It comes in for particular criticism for allowing funds to be channeled to tax havens. The Netherlands is therefore sometimes (incorrectly) labelled a tax haven. This damages the country’s image and makes it less attractive to real businesses,” the fact sheet said. “Furthermore, it can undermine taxpayer compliance and weaken support for tax facilities that are important to multinationals, such as the extensive treaty network and the provision of certainty in advance. This is undesirable.”
The Dutch list will be updated each year, while the EU list will be updated in the first quarter of 2019. If, in the future, jurisdictions are added to the EU list that are not on the Dutch list, the measures will also apply to these jurisdictions.
The Dutch list was subject to a consultation from Sept. 25 to Oct. 22, 2018. The consultation resulted in 16 responses from non-governmental organizations, law firms and others.