Limitation of tax benefits for letterbox companies

19 maart 2020 | Door:  Barry Scheer

Multinationals find it more difficult to take advantage of the tax benefits of European rules due to rulings by the European Court of Justice. Globally, the benefit of circulating their income through letterbox companies may drop by 20 percent.

If non-EU member states also participate, the effect will be greater. That is the conclusion of the Central Planning Bureau (CPB) in the report "Limitation of holding structures for intra-EU dividends: A blow to tax avoidance?"

Refuse tax benefit

The report analyses recent rulings by the European Court of Justice on the tax benefits of letterbox companies in the EU. For these tax benefits, European directives were invoked. According to the rulings, the tax benefit can be refused if the beneficial owner of the payments is established outside the EU.

The CPB concludes that the rulings of the European Court coincide with the policy of the OECD and the EU to combat tax avoidance. This is of great importance, as many countries now have national instruments to directly tackle abuse of treaty law and deny treaty benefits. This may be the end of certain multinational ownership structures for the sole purpose of reducing tax payments.

More effect

The CPB concludes that the court rulings considerably limit the possibilities for multinationals to reduce their tax burden. This is the case when the EU Member States can no longer be used to divert the flow of payments. If the other OECD and Inclusive Framework countries (including non-OECD cooperating countries) also participate in the combat against tax avoidance, the effect will be even greater.

Source: Taxence 19 December 2019