How wealthy Dutch families are avoiding millions in wealth tax

Wealthy Dutch people have been increasingly active in shifting their savings in recent years. That is what tax inspectors who deal with the wealthiest Dutch people say in an internal document Follow The Money acquired by appealing to the Open Government Act (WOO). That way they avoid millions in wealth tax.

When shifting, wealthy families put their savings into specially created companies, putting them in a different tax box. Due to the low interest rates on savings and a tax increase on private wealth in 2017, this trick became increasingly popular. It is particularly attractive for families with a lot of inherited wealth and for people with mega salaries, such as some professional football players, board members of large companies, flash traders and consultants in Amsterdam’s Zuidas.

In the document, the inspectors outline in detail what tax avoidance looks like in practice. At the beginning of 2018, for example, a Dutch couple had 150 million euros in the bank. That year, the couple set up a special company, in which they invested 85 million euros. This saves them 1.4 million euros annually.

They do not have to pay tax on that amount until they dissolve the company or add the money back to their personal balance as a profit distribution. But if the couple needs the money to buy a new superyacht or a villa, they can do so without paying taxes through a so-called ‘capital return’. This is possible because they have put the money into the company themselves. And with that it can serve as a tax-free piggy bank for private money.

Some wealthy Dutch people go even further. In the center of the country, a wealthy individual first deposited his private assets in a private limited company and then lent it out to a self-established foundation at a very low interest rate. He then went to invest it, with which “substantial untaxed returns” were achieved. According to the inspector, this person not only avoided wealth tax, but also profit tax.

Some of the inspectors have themselves worked for companies that advise the super rich and also report from that practice. “This is indeed something that the consultancy practice is working on a lot,” says one. “It’s such a no-brainer: you could show that to your customers via Excel and software, where they could save by shifting the power.”

The inspectors do not know exactly how much the Tax and Customs Administration is missing out on as a result of these types of constructions. “That is a huge amount at a national level, I estimate,” says one.

It is striking in the conversation reports that the shifting of money among the 1500 richest families – who are supervised by a special team – is the most normal thing in the world. “It is striking that many Very Wealthy Persons have very small box 3 assets,” says an inspector, who refers to the box in which private assets are taxed. “It is prevented that money ends up in box 3 at all.”

It is also very common among the group of wealthy people below and among large entrepreneurs. Even the teams of the Tax and Customs Administration that deal with SME entrepreneurs and ordinary private individuals have the feeling that it is also common among their groups.

Those parts of the Tax and Customs Administration have less insight into all individual returns. They draw their conclusion mainly because of the attention that smaller advisers devote to the transfer of assets. According to some of these advisers, the construction is already interesting from a capital of 300,000 euros.

Under pressure from the Supreme Court, the cabinet will tackle box 3, but according to experts in Follow The Money, people will continue to use this construction. “It makes little sense to introduce actual returns in box 3, if at the same time the deferral options in box 2 are largely maintained,” says Sonja Dusarduijn, associate professor of tax law at Tilburg University. “People keep looking for the lowest point.”