February 06, 2007


Celebrity royalties flow into Dutch tax shelters
Rolling Stones and others find a haven in Netherlands

AMSTERDAM: Last spring, Keith Richards, the craggy-faced and hard- partying lead guitarist for the Rolling Stones, fell from a tree at a beach resort in Fiji, slamming his head against the tree trunk on his way down. After emergency surgery in New Zealand, Richards, 62, survived his plunge.

What two of the other members of the Rolling Stones, Mick Jagger and Charlie Watts, apparently learned was that Richards's near-death experience meant it was time to think about their heirs. For that, the aging rockers turned to a reclusive Dutch accountant, Johannes Favie, whose company, Promogroup, has helped them minimize their tax bills for more than 30 years. (The fourth Rolling Stone, Ron Wood, handles his finances without Promogroup.)

And so, last August, according to details disclosed in documents maintained by the Handelsregister, the trade registry of the Netherlands, Promogroup helped the three performers set up a pair of private Dutch foundations that will allow them to transfer assets tax-free to heirs when they die.

What exactly are "tax shelters"?

Other Dutch shelters that Promogroup has arranged for the three have already paid off handsomely: over the past 20 years, according to Dutch documents, the 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, compared with the British rate of 40 percent.

Rolling Stones are not the only celebrities sheltering income in the Netherlands. The rock powerhouse U2 has transferred lucrative assets to Amsterdam, as have other pop singers and well-known athletes, all of whom have used or continue to take advantage of the Netherlands' tax shelters, according to a Dutch tax lawyer who requested anonymity because of client confidentiality agreements.

Entertainment companies and others that benefit handsomely from Dutch shelters include EMI, the record label, and CKX, the entertainment company that owns stakes in "American Idol," the Elvis Presley estate and the soccer pin- up idol David Beckham.

When it comes to attracting celebrity wealth seeking shelter from taxes, the Cayman Islands and other classic Caribbean tax havens are receding in favor, according to tax experts here and overseas.


While old-school, offshore tax havens — the warm ones with tropical fish, off-the-shelf holding companies with post-office-box addresses and scant regulation or transparency — still attract money, they are largely patronized, tax lawyers and entertainment bankers say, by hedge funds and private equity firms looking to protect lush trading profits from taxes.

But for earnings derived from intellectual property like royalties, the Netherlands has become a tax shelter of choice. With celebrities lending their names and images to clothing lines, licensing their hit songs to corporate sponsors, seeking roles in Hollywood and engaging in other ventures that generate significant taxable income, the Dutch system, which does not tax royalties, offers a nifty shelter.

As they flock to Amsterdam, celebrities are taking a leaf out of the playbook of major corporations that also use Dutch tax shelters to help reduce or eliminate royalty taxes on patents, another form of intellectual property. "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. "They are going for the high- end stuff and don't want to be seen as shady like some Caribbean haven."

Many of the world's multinational corporations, like Coca-Cola, Nike, Ikea (Dutch owned company) and Gucci, have set up holding companies here in recent years to take advantage of tax shelters nearly identical to the ones 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 companies and individuals.

Sun Microsystems, the U.S.-based 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."

A Sun spokeswoman declined to comment. The Netherlands is home to almost 20,000 "mailbox companies," Dutch shorthand for corporate shells set up by foreign companies and wealthy foreigners who use them to reduce taxes on royalties, dividends and interest payments, according to a report issued in November by SOMO, the Dutch initials for the Center for Research on Multinational Corporations, a nonprofit group in Amsterdam that monitors business practices of large companies. Globally, 1,165 companies use Dutch tax shelters to reduce or eliminate taxes on royalties and patents, according to SOMO.

Like the Rolling Stones, U2 has become sophisticated about finding overseas shelters for its money. When Ireland announced last spring that it would sharply curtail a tax break for musicians, painters, writers and sculptors, the shift posed a financial threat to U2, which had Ireland as 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. As of last year, U2 had amassed a net worth of €629 million, or $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 athlete's income.

The Dutch shelter is simple: royalties that flow into or out of a Dutch holding company are exempt from taxes. Although the nominal corporate tax rate in the Netherlands is around 30 percent, analysts say domestic tax shelters bring that rate down substantially. "For 90 percent of the people who do this, the motivation for using these structures is tax minimization, or avoidance," said Ton Smit, a tax lawyer at Tax Consultants International in Rotterdam, a firm that caters to celebrities, athletes and multinational corporations seeking to minimize their taxes.

1 comment:

Anonymous said...

During the probation period of the estate, the power of attorney is absolutely in the dirty hands of the Dutch, they will invest your tax shelter into the land scams of Aruba. Before you know it, it's all over. It is recognised loss of capital in foreign investment, and you became a total loser because your heir has to pay all those back taxes in those concealed years by the discovery of the NAFTA Free Trade Zone Treaty. Aruba had used your estate for money laundering purpose.