When MNEs are reconsidering their group structure, various aspects play a role. These include:
- skilled workforce;
- proximity to markets;
- logistics, ease of doing business;
- stable political climate, regulatory and other legal hurdles; and
- a local tax system that does not increase the MNE’s tax burden.
When taking about the Unilever headquarters relocation to Rotterdam, Dutch Minister of Economic Affairs Erik Wiebes credited Unilever’s choice for the Netherlands to the attractive business climate: “This decision shows that the Netherlands is an attractive business location for internationally-operating organizations. That is good news, because there is strong international competition for headquarters and R&D centers and it is the Dutch government’s ambition to position our business climate as strongly as possible.”
The quote shows two interesting developments: that there is strong international competition for headquarters and R&D centers; and that governments are pushing this competition for the most favorable business climate.
Coming back to Unilever’s decision to move to Rotterdam, several of these elements above were relevant, including legal and regulatory reasons. Unilever’s strategic review concluded that a single holding company brings greater simplicity and more flexibility to make strategic changes in the future, including through equity-settled acquisitions or de-mergers, which was, apparently, a legal and regulatory issue under the existing structure.
However, one key element for Unilever was, it is understood, the proposed abolition of Dutch dividend withholding tax—a recent attempt from the Dutch government to create a level playing field with other competitors including Luxembourg and the UK Unilever’s press release mentioned in this respect:
“Unilever NV dividends are currently subject to Dutch dividend withholding tax at a rate of 15 per cent. The Dutch government has announced that the Dutch dividend withholding tax will be abolished from 1 January 2020. Following simplification of the corporate structure and until such abolition, shareholders in the new Unilever holding company will be able to receive distributions in the form of a capital repayment for Dutch tax purposes which will be paid without Dutch dividend withholding tax.”
When it comes to governments attempting to attract MNEs to their jurisdiction, they may, in the short term, only influence a few areas such as the regulatory regime, bringing down legal hurdles and introducing a competitive tax system. Other areas discussed, including skilled workforce, proximity to markets, logistics, ease of doing business and a stable political climate, can only be influenced on a medium–long term.
The current Dutch government has made it clear that while on the one hand it is keen on attracting new businesses to the Netherlands, it also wants to comply with EU state aid rules and anti-BEPS provisions which look to counter aggressive tax planning. Against that background, the Dutch government for instance changed its policy on withholding taxes: For “legitimate” businesses, it will abolish its dividend withholding tax as of 2020 and the Netherlands currently has no withholding taxes on interest and royalty payments. However, payments of dividends, interest or royalties by any Dutch-resident entity will suffer a new withholding tax if such payments are made to a group entity that is either resident in a jurisdiction with a low statutory income tax rate or a jurisdiction that is on the EU list of non-cooperative jurisdictions (as of 2021).
It is clear that in addition to the Netherlands (https://investinholland.com), other governments are involved in similar exercises, e.g. Luxembourg (http://luxembourgforfinance.com) and Ireland (https://enterprise-ireland.com).