Tax evasion and weapon production: Letterbox arms companies in the Netherlands

Taxes are the financial foundation of modern states. They pay for common goods such as infrastructure, education and health care. Not only individual citizens but also companies profit from these common goods, e.g. the infrastructure for their transports is provided for by states. However, many big companies have a large number of strategies to pay as little tax as possible. For this they do not have to breach laws, as there are many meshes in tax law to slip through. We call this tax evasion. The Netherlands is notorious for its tax evasion possibilities. Amongst the big companies using the Dutch evasion routes are a large number of arms manufacturers and major international defence companies.

Who are these tax evading arms companies and what are their strategies? In this report, Stop Wapenhandel publishes its findings resulting from a search through the Dutch Chamber of Commerce. We found a large number of arms producing companies with shell companies established in the Netherlands. The major production of these companies takes place in the major western arms producing countries; the United States, United Kingdom, France and Germany. The arms companies turned out to have zero or minimal personnel presence in the Netherlands. Their almost empty offices or even only mailboxes gives them the legal possibility pay as little tax as possible with all available legal tricks.

The top-100 of global arms companies1 has been used as the starting point for this research. Of the almost US$ 450 billion annual defence production, these top-100 companies are responsible for about half, which is US$ 205 billion. Of the first ten biggest arms companies, seven have legal structures in the Netherlands. And one-third of the hundred biggest defence companies turned out to have one or more holdings in the Netherlands. They shuffle around with money and play tricks with prices and product costs to pay minimal taxes. Most of them are western-based companies, most have high profit rates.

Tax evasion by these companies is double cynical. Because not only are arms companies using, as all companies do, economic infrastructure paid for by taxes. It is also their products which are paid for by taxes. The lion share of what arms companies produce is bought by governments. Moreover, much of their research and development is subsidized by governments or done in cooperation with publicly funded universities and/or research institutes. As this study shows, arms companies profit in all possible ways from public money but contribute as little as possible.