The Netherlands and the UK are the largest two “conduits” by which corporate tax avoidance is facilitated, a just-published study of the ownership structures of 98m companies shows.
The two countries “are conduits for 37% of money heading to tax havens, most of which have strong links to Britain”, according to the study, carried out by researchers based at the University of Amsterdam.
The report finds that there are “five large conduit OFCs [offshore financial centres]” – consisting of the Netherlands, the United Kingdom, Switzerland, Singapore and Ireland – which function as “attractive intermediate destinations in the routing of international investments and enable the transfer of capital without taxation” to a network of some 24 “sink OFCs”.
The Netherlands was found to be a conduit for 23% of corporate investments that ended in a tax haven, while the UK was revealed to account for 14%, Switzerland 6%, Singapore 2% and Ireland 1%.
“This contrasts with countries such as Russia, China or most sink OFCs, which are used by companies as conduits to sink OFCs more frequently than as conduits to non-OFCs,” the report’s authors say.
They go on to identify “three small conduit OFCs that do not act as sink OFCs: Belgium, Panama and Guernsey”.
Certain “conduit OFCs” typically function as conduits to a specific set of “sink OFCs”, normally as a result of location or historic ties, the report’s authors note.
“This is reflected by European countries placed close to the Netherlands and Luxembourg, while Asian countries are placed close to Hong Kong and other sink-OFCs, and [the] United Kingdom acts as an integrator between Europe and Asia.
“The United Kingdom serves as a conduit between European countries and Luxembourg, Cayman, Bermuda, Jersey, the Virgin Islands and the Cayman Islands. The Netherlands is the principal conduit between European companies and Luxembourg, Cyprus and Bermuda.
“Importantly, the majority of investments from Luxembourg or Hong Kong do not require a conduit, and thus Luxembourg and Hong Kong companies invest directly in European countries and China.
“In contrast, investments from countries typically identified as tax havens (e.g., Bermuda, Virgin Islands or [the]Cayman Islands) do, and thus companies located in these jurisdictions invest in other OFCs.”
To read the report, entitled Uncovering Offshore Financial Centers: Conduits and Sinks in the Global Corporate Ownership Network , on the University of Amsterdam’s Corpnet website, click here.