Dutch Hearings After Panama Papers Dig Into Trust Sector

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By Linda A. Thompson

Dutch officials probing the use of tax schemes have heard evidence of the wide use of offshore trusts—by multinational companies, small companies, athletes and criminals—to shift profits out of the Netherlands.

Experts interviewed June 7 under oath by Dutch lawmakers revealed that such schemes are typically devised by tax advisers and executed by trust firms and directors or major shareholders.

The hearings are part of a highly anticipated special inquiry, the Parliamentary Questioning Committee Tax Schemes, or Parlementaire ondervragingscommissie Fiscale constructies, established by the Dutch parliament after the Panama Papers leak.

Offshore trusts play such a pivotal role in the tax avoidance schemes set up by Dutch residents and companies that local officials now consider them a red flag warranting further investigations.

27 Witnesses

The hearings taking place over eight days will see 27 individuals testify before a six-member panel of lawmakers. Those giving evidence range from tax officials and transparency NGOs to trust chairmen and journalists. Among them is Jan Favie, a representative for the Rolling Stones and U2, bands that have entities located in the Netherlands.

Similar to U.S. congressional hearings, the aims of the Dutch hearings are twofold—for lawmakers to obtain more insight into how profits are shifted out of the Netherlands for tax avoidance purposes, and the role played by the Netherlands itself in the rerouting of profits through the country in the wake of the massive leak of 10 million documents from the Panama law firm Mossack Fonseca & Co.

“Our two main objectives are to map out what happens with Dutch money abroad and how so-called mailbox companies in the Netherlands work,’’ said Henk Nijboer, the Labor Party lawmaker who chairs the committee. The role of trust offices in the tax system is of interest to the committee, he said.

Tax officials speaking at the hearing said that they try to contest the validity of offshore shell companies by requesting information that shows the real decisions are being taken not by the trust firm, but by the beneficiaries resident in the Netherlands.

Ben van den Berg—an official at the Dutch tax administration unit Tax Havens and Concern Funding Coordination Group, or Coördinatiegroep Taxhavens en Concernfinanciering— said that for business location investigations, “there’s only one thing that matters: the facts.”

“When no real economic activities take place in a tax haven, you can’t assign any profits to this tax haven either,” he added.

In investigations, officials consequently often request, for instance, email communications to see who is really pulling the strings, and that’s never the offshore trusts, Van den Berg said.

“For every transaction they complete they request permission from the director or major shareholder,” he said.

Noting that the unit had investigated some 100 cases in recent years, he said: “I haven’t ever seen that the management of a trust truly managed intangible assets and took related key decisions.”

Beneficial Ownership Rules

Experts also warned that a draft law providing for the establishment of a beneficial ownership register to combat money laundering and tax evasion wouldn’t be much help in identifying the real decision makers behind shell companies.

Jan van Koningsveld, a director of the Offshore Knowledge Centre who also previously worked for the Dutch anti-fraud agency Fiscale inlichtingen- en opsporingsdienst, noted that a 25 percent stake in a legal entity was expected to trigger the registry requirement.

However, he added: “I’ve never in my 25 years at FIOD encountered a criminal who was stupid enough to have a 25 percent share in his name.”

Noting that 95 percent of taxpayers used shell companies for legitimate purposes, for instance to escape media scrutiny, he warned that the registry proposal cast too wide a net and that it had seemingly become an end it in itself rather than a means to achieve more transparency.

Offshore Industry

Van Koningsveld moreover warned that the offshore industry was also getting ever craftier in designing products and services to respond to the increasing demand for anonymity from companies and wealthy individuals.

“In my view, there are some 40 offshore countries, and in every one of those you encounter five to six legal forms, so that means you have 240 to 250 different legal forms,” he said.

Under the draft proposal, so-called obliged entities such as tax advisers, banks, notaries, lawyers, brokers would be required to report suspicious transactions to the Chamber of Commerce.

“But you can’t expect a bank employee or someone from a trust firm or the FIOD or tax administration to know all these legal characteristics and keep up with all these changes,” Van Koningsveld said.

More Insight

Ruud de Smit, a professor in corporate taxation at Erasmus University Rotterdam, told Bloomberg BNA that the focus of the hearings on trusts was remarkable.

“This emphasis is notable not just for today’s hearings, but also in the hearings scheduled for later this week and next week,” he said in a June 7 email. “The questioning committee apparently wants to obtain much more insight into this sector.”

The committee will issue a report following the hearings but won’t make any recommendations for changes.

— With assistance from Anne van der Schoot (Bloomberg News)

To contact the reporter responsible for this story: Linda A. Thompson in Brussels at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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