80 percent of inward investments channelled out directly
The Netherlands has over 14 thousand special purpose vehicles or entities (SPVs or SPEs), also known as letterbox companies. Approximately 80 percent of those entities have no real economic activity in the Netherlands. The main motivation for multinationals to establish a special purpose vehicle is mitigation of tax costs.
Worldwide, the Netherlands is among the countries with the largest flows of inward and outward foreign direct investment (FDI) capital, including share capital and loan capital. In 2017, this involved a total amount of 4,587 billion euros. Around 80 percent of these investments (3,655 billion euros) did not remain in the Netherlands, but were transferred to a foreign destination through a special purpose vehicle.
<fig1>
Letterbox companies mainly investing outside the EU
In 2015, special purpose vehicles in the Netherlands carried out around 24 thousand different investments abroad. More than half of these investments (52 percent) went to non-EU countries. In comparison with regular companies, these entities tend to invest more in Asia and Oceania, particularly India, Hong Kong, China, Australia and New Zeeland. Furthermore, relatively many investments are transferred to Latin America and the Caribbean, mainly to Mexico, Argentina and the Cayman islands.
| Regio | EU-27 (%) | Asia and Oceania (%) | Europe non-EU (%) | Latin America and the Caribbean (%) | North America (%) | Africa (%) |
|---|---|---|---|---|---|---|
| Regular companies | 21918 | 4680 | 2269 | 2164 | 2189 | 1924 |
| Special purpose vehicles | 11662 | 4224 | 2382 | 2990 | 1240 | 1739 |
The Netherlands pivotal in international tax treaties
The Netherlands is among the countries with the highest numbers of bilateral tax treaties worldwide. Other countries with relatively many treaties in force include the United States, the United Kingdom and France. Most of these treaties are the so-called double taxation agreements or DTAs, aimed at the avoidance of taxes on the same economic activities in multiple countries by multinational enterprises.
The Netherlands has tax treaties with each country in Europe. Tax treaties are in force with most countries around Asia, but less so in Africa. Furthermore, tax treaties have been concluded with the major economies of the world, including Australia, Argentina, Brazil, China, India, Indonesia and the United States.
Connection between FDI and double taxation treaties
Multinationals can take advantage of the bilateral double taxation treaties between the Netherlands and other countries in order to keep their tax contributions at the lowest possible level. There is a significant connection between double taxation treaties and foreign direct investments, particularly those flowing through letterbox companies.
In countries which have a bilateral DTA with the Netherlands, the average level of investments in economic activity is over 52 percent higher than in countries without any treaty. Moreover, in the case of a DTA, investments flowing through special purpose vehicles are on average twice as high. The amount spent on investments through SPVs is nearly 7 percentage points higher than investments in countries without a DTA.
For more details on the role of international investment and trade agreements,
read the Internationalisation Monitor on financial globalisation.