The Dutch conduit sector is shrinking faster than previously assumed. This is one of the findings of a five-yearly revision of the balance of payments figures, the results of which are being published by DNB today.
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Simultaneously with this news release, DNB is publishing the report 'International interconnectedness in sharper focus', which includes revised figures on the balance of payments.
These improved figures provide a better picture of the Netherlands’ economic relations with the rest of the world. They are the result of a maintenance programme for Dutch macroeconomic statistics, the so-called benchmark revision. In line with European policies, DNB and Statistics Netherlands (CBS) carry out such major maintenance every five years to include newly available data sources, and to refine their methods. The new data offers users fresh insights and a longer time series of consistent balance of payments data.
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.
The Netherlands’ open economy has traditionally had a large conduit sector (see box), with multinationals using the country as a way station for investments elsewhere. Investments from foreign parent companies, for example, will 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.
Financial holdings and captive money lenders are also referred to as conduit companies. This is a diverse group of entities that are registered in the Netherlands with little or no operational activities, no more than five employees and a limited contribution to gross domestic product (GDP).
It includes special purpose entities (SPEs), which are often set up by companies for a single, specific reason (sometimes tax-related), finance companies owned by multinationals that raise money in the bond market and lend to foreign and domestic subsidiaries, and holding companies with non-financial subsidiaries.
Conduit companies often play an important role in multinationals’ international profit flows. The financial size of this group of companies is large compared to other countries: in the Netherlands, it comprises roughly two-fifths of the entire financial sector. Incidentally, in addition to these conduit activities in the financial sector, conduit activities are also carried out by other entities that are not part of a financial company. These are beyond the scope of this article, however.
In terms of relative size to gross domestic product (GDP), the Dutch conduit sector peaked in 2016. The revised figures show that the sector’s balance sheet size that year was €4,832 billion, or 671% of GDP. The balance sheet size as a percentage of GDP has decreased since then, to €4,567 billion (512% of GDP) in 2021, the end of the revision period.
This shows that the sector has contracted faster than previously estimated: from 2016 to 2021, the balance sheet size fell by 159 percentage points of GDP instead of 137.
Although the revision period ends in 2021, this trend appears to have continued over the past two years. In 2023, for example, negative direct investment was over €320 billion, and the year-end balance sheet size of the conduit sector had decreased to 435% of GDP (€4,648 billion).
This decline may be the result of various national and international initiatives and measures taken in recent years to combat tax evasion. Examples include the Base Erosion and Profit Shifting project of the Organisation for Economic Co-operation and Development (OECD), the 15% global minimum tax on multinational profits, and national withholding tax legislation. These initiatives and measures may be prompting companies to review their international corporate structures.
Incidentally, the revised figures also show that the Dutch conduit sector is larger than previously thought: around 5% on average between 2010 and 2021. Over the revision period, the size of the sector averaged €4,241 billion, €202 billion more than previously estimated.
This is partly related to an upward adjustment to loans granted by conduit companies to foreign companies and subsidiaries. The fact that more organisations are now classified as conduit companies also plays a role.
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