The Panama Papers are a hot topic. The ICIJ, an international organisation of investigative journalists has already made several revelations about money channelled away via tax havens. (Former) heads of state and government, politicians and top athletes are mentioned in the comprehensive study. In the Netherlands, too, some organisations are being cast in a bad light by these revelations, including a Dutch bank, a trust agency, a legal and notarial firm and even an organisation for development aid. It turns out that many Dutch SMEs have set up a company in a tax haven through a Panamanian intermediary. These are offshore companies, foundations and trusts.
There may be perfectly legitimate grounds for using a corporate entity in Panama or another tax haven. One reason that wealthy private individuals often give is the desire not to broadcast their wealth. By having such a corporate entity, companies and private individuals can protect themselves against their interests becoming public knowledge. They wish to remain anonymous.
Tax avoidance or tax evasion?
Tax avoidance is the reducing of the tax burden by taxpayers while remaining within the limits of the law. Avoidance is permitted and should not be confused with tax evasion (tax fraud). A corporate entity can offer privacy (if there are no leaks) and may result in a lawful way of reducing the tax burden. However, such a company also brings with it an increased risk of abuse: money laundering, financing of clandestine activities and/or tax evasion.
Jeroen Dijsselbloem, the Dutch Minister of Finance, sent a letter to the Lower House of the Dutch parliament on 10 February 2016, also on behalf of the Minister of Security and Justice and the Minister of Economic Affairs, outlining the Ultimate Beneficial Owner (UBO) register which is in the pipeline. That register should contain the names of private individuals who are pulling the strings at a corporate entity or some other legal entity, whether or not behind the scenes. The aim behind the UBO register is to prevent abuse.
In all likelihood, the names of shareholders with a stake of 25% or more will need to be recorded from 1 January 2017. The Netherlands needs to set up a UBO register on the basis of the fourth European anti-money laundering directive by no later than 26 June 2017. To date, only the sole shareholders and directors of private companies and the like have been known. The UBO register will ensure that even more information is publicised. The annual figures of many companies can be viewed at the Chamber of Commerce, which means that the assets of far more directors and major shareholders will become public knowledge.
Legitimately anonymous: open-end mutual fund
An increasing number of business owners are using a legitimate alternative for rendering some of their assets anonymous in the Netherlands, namely an open-end mutual fund (in Dutch: “Open Fonds voor Gemene Rekening”, hereinafter: OFvGR).
Some of the capital, liquid assets and/or investments are then placed in an OFvGR. The demerged capital is no longer visible to outsiders because an OFvGR does not have to be entered in the commercial register at the Chamber of Commerce. As far as we are aware, the OFvGR will not have to be recorded in the intended UBO register either. We therefore advise that you take action before 1 January 2017 if you want to keep your assets legitimately anonymous. This way you can escape Quote 500 without Panama
The OFvGR must pay corporation tax on the profits and/or income from the assets and ultimately you, personally as well, must pay a substantial interest tax (income tax) of 25% as a director and major shareholder. So, you pay tax properly in the Netherlands.
If you then also request the status of Exempted Investment Institution (VBI) for the OFvGR, this is a legal way, approved by the Tax and Customs Administration, of ensuring that you do not have to pay corporation tax in the Netherlands!