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News : International Last Updated: Dec 19th, 2007 - 13:17:15

Rolling Stones follow U2 tax haven trail to the Netherlands - home to 20,000 mailbox companies
By Finfacts Team
Feb 4, 2007, 12:15

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The Netherlands and Ireland are Europe's top tax havens for multinational companies but the Dutch also offer key incentives to attract the rich and three members of the Rolling Stones have travelled the trail of Irish rock group U2 and set up Dutch foundations that will allow them to transfer assets tax-free to heirs when they die.

President George W. Bush and Bono, frontman of the Irish rock group U2, discuss global AIDS, trade and Africa policy in the Oval Office Wednesday, Oct. 19, 2005, following lunch in the White House. White House photo by Eric Draper

SOMO, a Dutch research centre, said in a report in November 2006, that many foreign companies establish themselves in the Netherlands to take advantage of its very attractive tax system. Every year about €3,600 billion (over eight times the Dutch GNP) of foreign companies’ money flows through the Netherlands. The research centre says that this can have negative consequences for other countries, both rich and poor, that loose out on tax income. These tax haven features of the Netherlands also facilitate money laundering and attract companies with dubious reputations.

SOMO says that often the presence of the foreign company is no more than a ‘mailbox company’, which usually has no employees and is managed by a so called ‘trust office’. Despite the abolition of some fiscal advantages during the past few years, the amount of ‘mailbox companies’ is still growing. At the moment the Netherlands counts some 20,000 mailboxes.

In February 2006, Finfacts reported on a study commissioned by the Dutch Finance Ministry, which estimated the amount of money laundered in the Netherlands at €18.5 billion. €17.7 billion comes from crimes committed abroad, €1.8 billion from domestic crimes. The most important money laundering channels are real estate investments, export under invoicing and import overpricing and money laundering through special purpose entities. The report puts the Netherlands on the 7th position in a world ranking, together with countries such as France and Germany. Money laundering accounts for about 5% of Dutch GDP.

A report in the New York Times on Sunday Feb 04, 2007, says that documents maintained by the Handelsregister, the trade registry of the Netherlands, show that Promogroup, which also works for U2, helped Mick Jagger, Charlie Watts and Keith Richards, set up a pair of private Dutch foundations that will allow them to transfer assets tax-free to heirs when they die. Other Dutch shelters that Promogroup has arranged for the three have already paid off handsomely; over the last 20 years, according to Dutch documents, the three musicians have paid just $7.2 million in taxes on earnings of $450 million that they have channeled through Amsterdam — a tax rate of about 1.5 percent, well below the British rate of 40 percent.

Globally, some 1,165 companies use Dutch tax shelters to reduce or eliminate taxes on royalties and patents, according to SOMO.

“The Caribbeans are thinking about trading profits, not royalties, so the smaller European countries like Holland have had to be creative, tax-wise,” said David Pullman, an investment banker in New York who caters to entertainers and athletes, in remarks to the New York Times. “They are going for the high-end stuff and don’t want to be seen as shady like some Caribbean haven.”

Ireland's tax exemption on patent income provides the Irish Exchequer with billions of euros in corporate tax income from the profits of US multinationals' foreign units, that are routed through mailbox companies in Ireland. Two mailbox companies owned by US software giant Microsoft, operate from the Dublin offices of corporate lawyers Matheson Ormsby Prentice and billions of dollars in annual revenues booked through them, are estimated to be in double digits.

The New York Times says that many of the world’s multinational corporations, like Coca-Cola, Nike, Ikea and Gucci, have set up holding companies in the Netherlands in recent years to take advantage of tax shelters nearly identical to the ones that the Rolling Stones and U2 use. An additional draw is the Dutch Finance Ministry’s recent willingness to issue advance rulings that effectively bless the tax shelters, a fast-track process that has lured in companies and individuals seeking to use the Netherlands as a tax shelter.

Sun Microsystems, the giant American software and computer manufacturer, operates Dutch holding companies and is candid about why it does so. Until recently, on the Web site of the Netherlands Foreign Investment Agency, www.nfia.com, Sun offered the following blurb about the country’s accommodating tax laws: Let’s face it: ask foreign companies why they’re really located here, and nearly everyone will reply that it’s because of the favorable tax ruling. The combination of this with the country’s political stability, well-trained labor force, their linguistic skills and international attitude as well as the stable infrastructure for roads and telecommunications — this is why we’re here.

Last month, Microsoft Ireland Managing Director Joe Macri said that the Republic of Ireland's corporation tax rate is the prime reason why multinational companies choose to remain in Ireland. While access to the EU and the availability of cheap labour were key factors in attracting foreign investment here 20 years ago, these have largely been eroded by rising costs, falling productivity and the enlargement of the EU to central and eastern European countries, he said, adding: "That leaves us with tax."

The New York Times says that U2’s riches are well-traveled and, like the Rolling Stones, the band has become sophisticated about finding overseas shelters for its money. When Ireland announced in December 2005 that it would sharply curtail a lucrative tax break for musicians, painters, writers and sculptors, the shift posed a financial threat to U2, which has made Ireland its financial power base for nearly three decades. The Dublin-born-and-bred rockers built their fortune on hit songs and, in part, on Irish laws that forgive taxes due on royalties. Now, the tax exemption is at a level of €250,000 in any one tax year. In the tax year 2001, one Irish-based artist, likely to have been a musician, earned €10 million in tax-exempt income

Literary agent Marianne Gunne O'Connor, who represents, among others, high-earning, best-selling author Cecelia Ahern, daughter of Irish Taoiseach (Prime Minister) Bertie Ahern, said to the Irish Times that she was not in favour of capping the exemption.

"It is an inspiration to see that level of success, and it only happens to three or four people every decade," she said.

While she could see that the Minister was trying to be fair, she said that capping it was "like getting 10 out of 10 at school and then being penalised for it".

Penalised by having to pay tax on huge earnings? - - shades of New York's infamous Queen of Mean, Leona Helmsley who reputedly was overheard by her maid saying: Did you know that only the little people pay taxes?

The NYT says that as of last year, U2 had amassed a net worth of €629 million — around $908 million — according to the annual “Rich List” of top earners in The Sunday Times of London. Royalties are the income that artists and athletes earn from recordings, performances, trademarks, brands, patents, copyrights, film rights, product endorsements, videos, films and the ever-extending commercialization of those assets — in short, the major portion of an artist’s or an athlete’s income.

So while the Rolling Stones paid tax at a rate of 1.5% on its royalty income, U2, fronted by anti-poverty campaigner Bono had no tax to pay on the bulk of its income for more than 20 years. In 2006, in response to the ceiling on its tax-free status, U2 moved its prime money-making unit to the Netherlands.

“U2 is a global business and it pays taxes globally,” Paul McGuinness, the U2's business manager said in comments to the New York Times. McGuinness shares equally in the group’s earnings. “At least 95 percent of U2’s business — including record and ticket sales — takes place outside of Ireland and as a result the band pays many different kinds of taxes all over the world. U2 is fully compliant with all Irish tax laws.”

McGuinness said that Bono and U2 “continue to remain Ireland-based and are personal investors and employers in the country.”

“Innovative tax policies have been the bedrock of Ireland’s current prosperity,” he added. “Like any other business, U2 operates in a tax-efficient manner.”

© Copyright 2007 by Finfacts.com

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