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Conduit activities in the Netherlands declined in fourth quarter of 2023


In the fourth quarter of 2023, foreign multinationals transferred over €300 billion in conduit activities from the Netherlands abroad, DNB figures show. These relocations indicate adjustments in business structures, and may be due to the introduction this year of a minimum tax for these international companies.

Published: 25 March 2024

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Domestic and foreign multinationals play a major role in the Dutch economy. Dutch balance of payments statistics reveal that the cross-border investments of these companies are significant: for years, the Netherlands has been in the global top five countries with the largest direct investment positions.

Source: DNB statistics

At De Nederlandsche Bank, we independently compile statistics on the Dutch financial sector and economy. This article is based on these statistics. More information on our statistics and all dashboards can be found on our Statistics homepage.

In part, this is because the Netherlands is a conduit country for many multinationals investing in other countries. In these cases, for example, investments from parent companies enter the Netherlands and immediately leave the country again as outward investments in subsidiaries. This phenomenon of capital flowing through the Netherlands involves what are known as conduit activities.

Conduit activities declined in final quarter of 2023

In the fourth quarter, Dutch financial holdings and companies reported relatively high levels of negative direct investment transactions. These types of transactions involve, for example, divestments or the repayment of loans between business units. The total value of these transactions amounted to about €-310 billion. Most of these transactions were effected at Dutch financial holding companies and ‘special purpose entities’, which are mostly part of the corporate structure of multinationals. This reduced the overall size of these sectors by about 8%.

Such transactions may indicate adjustments in the international business structure of multinationals. Since both assets and liabilities were moved out of the Netherlands, it is likely that the reported transactions mainly relate to business units used for conduit activities.

One possible explanation for the negative direct investment is the introduction of a global minimum tax of 15% on the profits of multinationals. This tax rule, introduced by some 140 countries at the start of this year, may prompt companies to review their international corporate structures.

As the negative transactions concern both assets and liabilities, they have little impact on the net international investment position of the Netherlands. The net international investment position is the balance of  external assets, owned by the Netherlands's government, companies, and citizens. and external liabilities, which are the foreigners-owned domestic assets. This balance rose by €46 billion in the fourth quarter compared to the previous quarter, to €743 billion. This is mainly because Dutch pension funds saw the value of their external assets increase on the back of rising stock exchange prices and the increased value of their derivatives position.

Current account balance increased slightly

The current account balance is the difference between income from abroad and expenditure abroad. This balance increased by €2 billion compared to the fourth quarter of 2022, to €23 billion.

The current account records international trade in goods and services, and income transactions such as interest, dividends and pension payments.

The year-on-year increase in the fourth quarter of 2023 is mainly the result of a higher export surplus. This rose mainly due to trade in goods: the goods balance increased by €1.6 billion. The underlying value of both imports and exports declined, mainly due to lower energy prices.

Dutch institutions' interest income went up

The current account balance was additionally affected upward in recent quarters by cross-border interest income by Dutch institutions such as pension funds.

Since 2022, the ECB has raised its policy rates in a number of steps to curb inflation in the Eurosystem. The Netherlands holds more interest-bearing positions (deposits, debt securities and loans) abroad than other countries do in the Netherlands, which means that the Netherlands generally receives more interest from abroad than it owes to other countries.

Thanks to this positive net position, Dutch financial institutions benefit from the recent interest rate increases. Net interest income to and from abroad has risen from around €2 billion to around €7 billion in recent quarters.

In the balance of payments, this interest income is included in the primary income account, along with, for example, corporate profits of multinationals transferred from and to other countries. Despite rising interest income, the primary income account total was negative in the fourth quarter of 2023. The balance of corporate profits of multinationals shows a volatile pattern: whereas it still made a positive contribution of more than €9 billion to the primary income balance in the third quarter of 2023, the balance in the fourth quarter of 2023 was almost €-6 billion, similar to the fourth quarter a year earlier.

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