How The Netherlands Became a Tax Haven for Multinationals

The Netherlands' tax environment for multinational foreign directive investment (FDI) has been characterised as a tax haven or, perhaps more accurately, as a 'conduit financial centre'. Anyway, with a share of one-third in the worldwide market for tax-driven FDI diversion, the Dutch tax planning industry has become a prominent target of recent OECD and EU anti-avoidance measures. Adaptations in many of the relevant Dutch tax rules are now under way. The paper looks at the interactions between (a) the making of the relevant tax environment and (b) the rise of a specialised industry for FDI tax planning over the last century. The basic mechanism will be shown to be simple. A century ago, Dutch rules for taxation of cross-border FDI started to develop from a consistent view: FDI should not be hindered by tax borders. This served the interests of a small open economy hosting many internationally successful enterprises. A specialised tax planning industry only emerged in the second half of the twentieth century as a by-product of international tax policies aimed at substantial business interests. But as this industry grew, its role in shaping and reshaping the relevant rules increased. Only very recently has this role begun to decline, due to both international policy pressure and national public opinion. Issues to be discussed from this perspective include the development of Dutch tax treaty policy, the Dutch position in international tax coordination processes, and the development of relevant rules in Dutch tax law, starting with the first Dutch income tax law (1893/4) and with a focus on post-1945 developments.