Who’s hiding where and what? « Mining Blog

Who’s hiding where and what?

23. October 2011,

A recent report by Publish What you Pay (PWYP) Norway singled out the country as a favoured European “secrecy jurisdiction” for extractive industry corporates, mentioning Glencore among other mining companies as benefiting from having taxation-exempt subsidiaries in the Scandinavian country.

However, the Netherlands isn’t far behind, according to Simon Goodley and Dan Milmo writing in the Guardian (20 October 2011). They identify Schiphol airport (sic) as home to AA Holdings Argentina BV – part of London-listed mining giant Anglo American plc; while Lelystad airport is said to be “clearly the natural home of Rio Tinto’s Mali Diamond Exploration BV.” (though the writers say this particular offshoot of Rio Tinto is “now believed” to be dormant)

PWYP Norway itself justified paying special attention to the Netherlands because the government doesn’t put details of trusts on public record, doesn’t require company accounts or beneficial ownership to be made publicly available, nor maintain company ownership details in official records.

Its report says: “Among the 358 Netherlands subsidiaries belonging to the world’s most powerful extractive industry companies are subsidiaries whose names suggest their physical assets are held in a country which is not the Netherlands.”

On the same day the PWYP Norway report appeared a new book, “Commodities: Switzerland’s Most Dangerous Business”, was published by the Zurich-based NGO the Berne Declaration. It also found “a typical structure for aggressive tax avoidance: trading activity and [a] tax home in Switzerland, a Dutch holding company for temporary storage of global income, and one or more vehicles in tax havens for the non-transparent and final destination of profits. That’s how Trafigura paid only 0.6% tax in 2010. Measured at the standard rate, the trader saved roughly $500m between 2005 and 2010.”

Oliver Classen of the Berne Declaration asked: “So why such complex structures? Obviously because the profit is worth it, because of tax savings.

He went on:

“But why place [profits] with the parent holding company in the Netherlands and not Switzerland, with its very favourable tax exemptions for holdings? ”

Classen answered the question thus: “Because then you can have both: an attractive network of double tax agreements, as Switzerland lacks agreements with Brazil, Nigeria, Argentina; and the favourable taxes of Switzerland, as the Netherlands allows their holding companies to pay the big part of taxes in another country.

“Equipped with double tax agreements, the parent holding company can serve as a distribution platform to easily exchange money between all the different entities. Finally the profits are often placed offshore, such as in employee trusts.”

Koos de Bruijn, of Tax Justice Netherlands, points out that: “The Netherlands is an increasingly attractive location for multinationals to place holding companies, because of the tax treaties it has with over 100 countries.

“Along with these come the Netherlands’s famous participation exemption [exemption from taxation for a shareholder in a company on dividends received, and potential capital gains arising on the sale of shares], the absence of withholding [source] taxes on interest and royalties, the possibility of being able to conclude tax rulings [before paying tax], the use of legal co-operation and the so-called innovation box, a special fiscal arrangement designed for research and development.”

The Guardian quotes a 2007 paper by Francis Wezig (“The Central Role of Dutch Financing Companies in Tax Avoidance Strategies”) where the author pointed out that: “[M]any ‘conduit constructions’ involve affiliates in the Netherlands. These affiliates are officially registered by the Dutch Central Bank (DNB) as special financial institutions (SFIs). According to the DNB definition, SFIs are foreign-owned and are used at least partly for fiscal reasons. The SFI register is not public … the Netherlands is the largest conduit country worldwide.”

A spokeswoman for the Dutch ministry of finance defended current government practice, claiming that: “Like many other countries, such as the UK, the Netherlands has a participation exemption. Dividends paid by subsidiaries to a parent company in the Netherlands are exempted under certain conditions. The purpose is to avoid economic double taxation, as the profits are already taxed at the level of the subsidiary. The participation exemption does not apply to subsidiaries that can be qualified as portfolio investments. The Netherlands has an extensive network of double tax treaties and levies no source taxation on royalties and interest. The system is fully transparent; the Netherlands has mechanisms to exchange information with more than 100 countries.”

Oh ja, werkelijk?

For more scruinty of Trafigura, go to:
http://moneytometal.org/index.php/Trafigura

And for Glencore, please visit:

http://moneytometal.org/index.php/Glencore

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