Europe's unexpected tax havens;

              Europe's
Unexpected
Tax Havens/
by TERRYM. BROWNE / Partner, International Tax Services, London
When one thinks of a tax
haven, he probably pictures
a small island, perhaps in the
Caribbean, or an underdeveloped
country which is attempting to develop
its economy by offering tax holidays to
foreign investors. Europe certainly does
not reflect either of these images,
traditionally having been considered a
wealthy continent with well developed
industrial and financial bases. In these
days of depressed economies in the
Western world, however, many
European countries have been striving
to attract foreign investment and have
used tax incentives to bring foreign
money to their countries.
The combination of sophisticated
international financial structures that
can be arranged in countries such as the
Netherlands and the tax incentives that
are offered to manufacturing compa­nies
by countries such as the United
Kingdom and Ireland can result in little
or no tax being paid by investors
operating in those countries. The
following is a summary of how
some of these tax advantages may be
obtained.
THE NETHERLANDS
A company formed in the Netherlands
will pay no Dutch tax on the income it
receives from an overseas branch or
associated company. This "participation
exemption/'as it is called, is subject to
two main conditions: firstly, that the
Dutch company has at least a 5 percent
interest in the associated company and,
secondly, that the foreign income is
subject to a local tax on income. The
exemption does not apply to interest,
royalties, management fees, or similar
income, but where such types of
income are flowing through a Dutch
company, it is possible to agree on a
profit for tax purposes on a "tum"of, say,
3 to 5 percent.
The advantage of these low tax rates
lies in the extensive network of double-tax
treaties which the Netherlands has
with other countries. It has approxi­mately
40 such treaties, the majority of
which require no withholding taxes on
income paid to or out of the Nether­lands,
other than on dividends where
the rate of withholding tax is normally
reduced to around 15 percent. Accord­ingly,
the Netherlands can provide a
very cheap route for transfering funds
between different countries.
IRELAND
In recent years, Ireland has been one of
the most imaginative countries in
Europe in its approach to attracting
foreign investment. In 1967, manufac­turing
exports amounted to IR £78
million ($187.2 million); in 1980, they
totalled IR £2.253 billion ($4.66 billion).
These figures reflect the Irish govern­ment's
successful attempts at attracting
new industries to Ireland through the
offer of tax incentives and cash grants.
The normal corporate tax rate on profits
from the wholesaling of goods
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