According to a new report published by the International Monetary Fund (IMF), multinational companies channel over $3 trillion in ‘phantom’ foreign investments through the Netherlands every year in order to lower their corporate tax bills.
IMF defines foreign direct investment (FDI) as “cross-border financial investments between firms belonging to the same multinational group,” characterized as largely “phantom in nature—investments that pass through empty corporate shells” with “no real business activities.” Nearly half of the world’s so-called ‘phantom capital’ is hosted by Luxembourg and the Netherlands, collectively totaling a record of $15 trillion in 2017. The world total ‘phantom’ FDI has reportedly increased from 30% to 38% since 2010.
Some countries attempt to attract more FDI because, according to the IMF, it’s “often an important driver for genuine international economic integration, stimulating growth and job creation and boosting productivity through transfers of capital, skills, and technology,” but certain large corporations use FDI regulations increasingly to invest in companies which offer no economic benefit to the host nation.
IMF explains that “investments received from foreign empty shells suggest that foreign controlled multinationals try to avoid paying taxes in the host economy.” Adding, “Unsurprisingly, an economy’s exposure to phantom FDI increases with the corporate tax rate.”
The IMF report labels the Netherlands as a “well-known tax haven” and one of 10 economies that hosts more than 85% of all phantom investments.