Footwear company Crocs bypasses European and US efforts to end a widely used form of tax avoidance in the Netherlands. Due to interventions by both Brussels and Washington, the Dutch CV/BV structure is no longer fiscally attractive for U.S. companies as of 2020. Crocs had been using that route since 2006. By shifting trademark rights, Crocs has now found a new way to avoid taxation via the Netherlands, according to research from Dutch investigative journalism platform The Investigative Desk, carried out for Dutch newspaper NRC Handelsblad.
Crocs is one of 66 U.S. multinationals that made use of a Dutch CV/BV structure in the last decades, according to an inventory by The Investigative Desk. The Colorado-based company ($1.4 billion turnover, 4,600 employees) saved €44.5 million ($52,6 million) in Dutch taxes between 2016 and 2019 alone, using a dividend flow to a Dutch subsidiary. This was possible because the Dutch government favored U.S. companies since 2005 by abolishing an anti-abuse provision solely for them.
For years, the CV/BV construction was considered the Dutch showpiece for attracting U.S. multinationals, such as Monsanto, Wells Fargo, Foot Locker, and VF Corporation, which owns brands including Eastpak, The North Face, and Timberland. It was one of the main arguments for calling the Netherlands a tax haven. It worked this way: American multinationals collected worldwide earned profits in a tax-transparent Dutch limited partnership (in Dutch: “Commanditaire Vennootschap” or CV. The Dutch and U.S. tax authorities pointed to each other when it came to levying taxes. In practice, the multinationals did not pay any tax anywhere — the CV functioned as a fiscal-friendly piggy bank. The multinationals only paid taxes when emptying their piggy banks to reshore the profits to the United States, but they could postpone that indefinitely.
Due to tax reforms in the United States and Europe, this fiscal construction is no longer profitable today. Some of the 66 multinationals have therefore deregistered their limited partnership from the Dutch Chamber of Commerce. Other companies explore options to use other Dutch tax routes.
Crocs bypasses the reforms with something called “onshoring.” This is how it works: a Dutch private limited company (in Dutch: “besloten vennootschap” or BV) of Crocs buys the intellectual property of the Dutch CV, with money from a third sister company. The BV may write off the purchased IP-rights, resulting in a deductible item of $492.5 million (€419 million) in this specific case. Crocs offsets that amount against future profits, which means that the company is expected to pay tens of millions of dollars less in tax in the Netherlands.
Those future tax-free profits come from all over the world. For every pair of plastic shoes sold in Japan, Puerto Rico, or Australia, local sellers pay a fee to the Dutch letterbox company owning the IP-rights.
However, the footwear company may only be able to enjoy this new tax trick for a few years. The Dutch government is working on a law that should make it impossible to deduct intellectual property rights to avoid tax.
Crocs did not respond to multiple requests for contact via phone and email.
9 September 2021