US largest foreign investor in the Netherlands

Photo description: Businessman watching the New York City skyline on the rooftop of a skyscraper.

Foreign direct investment and multinationals

Authors: Sarah Creemers, Loe Franssen, Marjolijn Jaarsma

Top investment countries = 5 bn Germany Luxembourg €113 bn €102 bn United States Switzerland United Kingdom €310 bn €231 bn €217 bn Inward and outward FDI (excluding SPEs), position in 2018 Top investors in the Netherlands United Kingdom Luxembourg United States €213 bn €209 bn Switzerland Germany €122 bn €116 bn €174 bn = 5 bn

In addition to international trade, foreign direct investment is also a way to build lasting economic relationships abroad. The Netherlands attracts foreign investment, which can lead to more jobs, but also to new knowledge and technologies. Multinationals are the actors behind this foreign direct investment, and it is therefore interesting to study them further.

7.1Key findings

Foreign direct investment (FDI) is a key element of globalisation. International business is obviously more than just international trade. Enterprises can also invest across borders, for example by choosing to set up a business in another country (greenfield FDI) or to take over a local business (brownfield FDI). The Netherlands is one of the top 5 countries in the world for investment, an important factor being the attractive investment climate that prevails in the country. Advantages include the country’s physical and digital infrastructure, the highly educated labour force, the efficient labour market, and investments in innovation and technology (Franssen, 2018).

Through foreign investment, enterprises can, for example, scale up production, take advantage of cheaper local factors of production and save transport costs to foreign markets in order to compete with foreign enterprises. However, enterprises may also be active abroad for tax reasons. Enterprises try to reduce their tax payments by channelling their financial or investment activities through countries with a favourable tax environment. The Netherlands plays a major role in this, since some 63 percentnoot1 of inward foreign investment is channelled directly abroad, without any form of economic activity in the Netherlands. In this process, multinationals make use of administration or trust offices in the Netherlands, where they temporarily place their capital before actually investing in third destinations. By means of such Special Purpose Entities (SPEs), these multinationals can then make use of the advantageous Dutch tax rules, without undertaking any production in the Netherlands (Boonstra, 2018).

The Netherlands plays an important role in the area of capital flows. In 2019, the Netherlands’ international investment position rose to 2,498 billion euros in outward investments, excluding SPEs. This was around 274 billion euros more than the year before. Only the United States had more outward foreign direct investment in 2019. As for inward foreign investment, excluding SPEs, the Netherlands ranked fifth in the world in 2019, with 1,768 billion euros. Despite an increase of 174 billion euros compared to 2018, the Netherlands slipped down one place in favour of China.

Around 14 percent of total inward direct investment in the Netherlands in 2018 came from the United Kingdom, after adjustment for investments via SPEs. This makes the United Kingdom the largest investor in the Netherlands in 2018, while in 2015, some 10 percent of total inward direct investment came from the UK. This made the United Kingdom ‘only’ the fourth largest investor in the Netherlands in 2015. The largest share of outward investments by the Netherlands was in the United States in 2018, as was the case in 2015. These investments, excluding SPEs, represented 15 percent of total Dutch outward direct investment.

In 2017, a total of 24,375 multinationals were active in the Netherlands, of which 56 percent were foreign-owned. The share of foreign-owned multinationals has increased by nearly 10 percentage point since 2010. With some 2.3 million employed persons, Dutch and foreign-owned multinationals represented 39 percent of total employment in the Dutch business economy in 2017. In the Dutch business economy as a whole, the majority of enterprises (including many self-employed workers without employees) are in the specialised business services sector, while the largest number of multinationals are active in the wholesale and retail sector.

In 2018, multinationals accounted for 84 percent of goods exports and 90 percent of exports of services. Both imports and exports of Dutch multinationals grew faster than those of foreign-owned multinationals over the last year.

84% of goods export value is on account of multinationals

Multinationals operating within the borders of the Netherlands are often under US control. In 2017, there were around 2,875 US-controlled enterprises in the Netherlands, which represented more than 21 percent of all enterprises under foreign control. With around 203 thousand employed persons, these US-controlled multinationals accounted for 20 percent of total employment in foreign-owned multinationals in the Netherlands.

Dutch multinationals also invest abroad: in 2017, there were a total of 23,205 Dutch subsidiaries abroad, of which 15 thousand were in EU countries and 8,205 in non-EU countries. With 4,221 subsidiaries of Dutch multinationals, Germany was a particularly important country of destination. There were 356 thousand full-time jobs at Dutch subsidiaries in Germany.

7.2Macro-level view of investment flows

The first part of this chapter discusses the investment position of the Netherlands, based on macro-level figures of the Dutch central bank (De Nederlandsche Bank, DNB) for the period 2015–2019. Who are the most important investment partners for the Netherlands? Do we see different patterns when we disregard investments through Special Purpose Entities? How have investment flows developed in recent years?

The Netherlands as a country of investment

In 2019, the Netherlands was among the top 5 largest investment countries worldwide. The Netherlands was actually the second-largest foreign investor in the world, preceded only by the United States (UNCTAD, 2020). As for inward foreign direct investment, the Netherlands ranked 5th worldwide after the United States, the United Kingdom, Hong Kong and China (UNCTAD, 2020). These UNCTAD figures exclude investments through Special Purpose Entities.

DNB records and publishes macro-level figures on the bilateral investments of the Netherlands. In 2018, there was a small dip in the total value of foreign investment in the Netherlands compared to 2017 (Figure 7.2.1). This was related to a divestment in 2018 due to the closure of a Special Purpose Entity based in the Netherlands (DNB, 2018a). In 2019, the Netherlands' international investment position comprised 4,709 billion euros in inward investments and 5,788 billion euros in outward investments. The previous year, these totals were 4,664 billion euros (inward investments) and 5,636 billion euros (outward investments).

7.2.1 International investment position of the Netherlands, 2015-2019 (bn euros)
Type Jaar Excluding SPEs SPEs
Inward ‎2015, Inward 1420 2827
Inward ‎2016, Inward 1485 3062
Inward ‎2017, Inward 1523 3223
Inward ‎2018, Inward 1594 3070
Inward 2019, Inward 1768 2941
Outward ‎2015, Outward 2005 3156
Outward ‎2016, Outward 2247 3279
Outward ‎2017, Outward 2247 3449
Outward ‎2018, Outward 2224 3412
Outward 2019, Outward 2498 3290
Source: DNB

The Netherlands as a transit country

A substantial share of the foreign direct investment that enters the Netherlands does not end up in the Dutch economy, but is channelled from one country to another through Dutch Special Purpose Entities. The low Dutch withholding tax, the participation exemption, tax rulings, the accessibility of the Dutch Tax and Customs Administration, the expertise and experience of the Dutch trust sector, and the bilateral treaties that the Netherlands has concluded with many countries are major reasons for SPEs to redirect their investments through the Netherlands (Lejour & van ’t Riet, 2013; Franssen, 2018).

Around 15 thousand Special Purpose Entities were based in the Netherlands in 2018 (DNB, 2018b). With a balance sheet total of 3,609 billion euros at the end of 2017, SPEs were the largest Dutch financial sector, larger than the banking sector, which had a balance sheet total of 2,281 billion euros (DNB, 2018b). DNB figures show that in the period 2013–2016 about 180 billion euros per year of income relevant for tax purposes (dividends, interest and royalties) flowed through the Netherlands via SPEs (DNB, 2018b).

Figure 7.2.1 shows the share of investments of Special Purpose Entities. In addition to the 3,290 billion euros of investments of SPEs abroad, there were also 2,498 billion euros of investments from the Netherlands that were not made through SPEs. This brings the total of outward direct investment in 2019 to 5,788 billion euros. If the investments through SPEs are excluded, the position of Dutch outward investment has remained stable since 2016.

Around 63 percent of total foreign investment in the Netherlands is directly channelled to other destinations. The remaining 37 percent is actually invested in the Netherlands. This is the type of investment that can lead to more work, jobs and tax revenues within the Netherlands. If investment through SPEs is again excluded, inward FDI has even risen slightly since 2015.

Most direct investment (excluding SPEs) from UK and Luxembourg

The Netherlands’ most important investment partners are the United Statesnoot2, Luxembourg, the United Kingdom, Switzerland, Ireland and Germany.noot3 The largest share of investment in the Netherlands is in US hands, followed by Luxembourg and the United Kingdom. If SPEs are excluded, some shifts can be seen in the 6 largest investment partners. Most investment in the Netherlands is then in UK hands (excluding SPEs), followed by Luxembourg, the United States and Switzerland.

In 2018, the United Kingdom invested some 213 billion euros (excluding SPEs) in the Netherlands (Figure 7.2.2). Compared to 2015, investment from the United Kingdom has increased and the country has moved up from 4th place to 1st place in the top 6 investment partners. The larger UK investments in the Netherlands may be the result of the uncertainty associated with Brexit. UK enterprises find it important to be present in an EU country in order to be part of the single market even after the UK has left the EU (Algemeen Dagblad, 2019; RTL Nieuws, 2019).

In 2018, the Netherlands had substantial amounts of investments in the United States in particular, totalling nearly 775 billion euros. Figure 7.2.2 shows that if investments channelled through Special Purpose Entities are not considered, the United States is still the main destination for Dutch investment, followed by Switzerland, the United Kingdom and Germany. In 2018, some 15 percent (310 billion euros) of outward direct investment went from the Netherlands to the United States, after correction for investment through SPEs. The United States was already the Netherlands’ most important destination for investment in 2015.

Compared to the 2015 situation, the United Kingdom dropped one place in the top 6 investment destinations for the Netherlands in 2018, moving from 2nd place down to 3rd place. Due to Brexit, the United Kingdom may become a less attractive destination for foreign investment. Firstly, Brexit may mean the UK losing access to the EU internal market. Secondly, the UK’s role in global value chains will be made more difficult by possible trade barriers between the UK and the EU (DNB, 2019). Data from the UK Department for International Trade show that since the Brexit referendum, the number of greenfield FDIs and the number of mergers and acquisitions by foreign enterprises in the UK have fallen by 14 percent, reaching their lowest levels in six years (Romei, 2019). According to Financial Times calculations, the number of jobs created in the UK as a result of greenfield FDI has fallen by 19 percent compared to the same period before the referendum (Romei, 2019).

7.2.2 Total value of FDI, excluding SPEs, top 6 partner countries, 2018 (bn euros)
Type Investeringspartner Total value of foreign investments excluding SPEs
Inward United Kingdom, Inward 213
Inward Luxembourg, Inward 209
Inward United States, Inward 174
Inward Switzerland, Inward 122
Inward Germany, Inward 116
Inward France, Inward 89
Outward United States, Outward 310
Outward Switzerland, Outward 231
Outward United Kingdom, Outward 217
Outward Germany, Outward 113
Outward Luxembourg, Outward 102
Outward France, Outward 95
Source: DNB

The figures shown in Figure 7.2.2 refer to the country from which the investment directly originates. However, due to different constructions (e.g. channelling investment), there can be a difference between the location where the investment has directly come from and where it originally came from. A recent article by Hagendoorn (2020) compares the figures for investments according to the direct and the original ownernoot4 and finds striking differences among the top 6 countries that invest the most in the Netherlands.

For example, figures on direct investment by original owner show that the United States was the most important investor in the Netherlands in 2017. The United States ultimately invested some 551 billion euros (excluding SPEs) in the Netherlands, which represents nearly 40 percent of the total Dutch position in inward investment. According to traditional figures on investment by direct owner, the total was less than half, at 206 billion euros (excluding SPEs). This is ‘only’ 15 percent of the total position in inward investment.

Luxembourg, for example, is a country that had a high score in the 2017 figures for investment by direct owner, but did not play a significant role when the original owner was considered. The country therefore acts as an important ‘intermediary’ between the original owner and the Dutch enterprise in which an investment is made (Hagendoorn, 2020). The United Kingdom also often acts as an ‘intermediary’ for investments from the United States, for example, and even for Dutch investments that return to the Netherlands via foreign group enterprises by means of loans or participating interests (Hagendoorn, 2020).

7.3Multinationals in the Netherlands

This section looks specifically at the enterprises that invest: the multinationals. CBS figures on the Inward and Outward Foreign Affiliates Statistics were used to examine multinationals in the Netherlands by nationality, for the period 2013–2017. How many multinationals are there in the Dutch business economy? Which sectors are they active in and how much employment do they provide? Which countries control the foreign multinationals? How much international trade and what proportion of employment in the Dutch business economy do multinational enterprises account for?

A multinational is an enterprise that exercises ultimate control over other enterprises in two or more countries. CBS can make a distinction between Dutch and foreign-owned multinationals. A Dutch multinational is an enterprise under Dutch control with subsidiaries (majority interests) abroad. A foreign-owned multinational is a subsidiary based in the Netherlands that is ultimately controlled from abroad. The number of multinationals is increasing, as new multinationals establish themselves in the Netherlands and/or Dutch enterprises are taken over by foreign enterprises. In addition, Dutch enterprises are also increasingly crossing the country’s borders.

More foreign-owned multinationals in the Netherlands

In 2017, the most recent year for which data are available, 24,375 multinationals were active in the Dutch business economy, representing 2.1 percent of the total business population. More than half of the multinationals were under foreign control. Figure 7.3.1 shows that the share of foreign-owned multinationals has grown since 2010.

7.3.1 Number of multinationals in the Dutch business economy, 2010-2017
Jaar Foreign multinationals Dutch multinationals
2010 8565 9655
2011 10455 9530
2012 10850 9305
2013 11970 9195
2014 12340 9780
2015 12620 9925
2016 13130 10265
2017 13690 10685
7.3.2 Number of employed persons at multinationals in the Dutch business economy, 2010-2017 (thousand)
Jaar Foreign multinationals Dutch multinationals
2010 818 993
2011 855 960
2012 858 1048
2013 870 1049
2014 867 1103
2015 916 1151
2016 967 1204
2017 1017 1252

Altogether, multinationals employed nearly 2.3 million people in the Netherlands in 2017, accounting for 39 percent of total employment in the country. This is a net figure of 98 thousand full-time jobs (FTEs) more than the previous year (+4.5 percent). An increase in employment at multinationals may arise because the enterprise grows and creates new jobs, but it may also be due to shifts in control. For example, Dutch enterprises, and therefore jobs, can be taken over by foreign-owned multinationals, or an existing Dutch enterprise that is not yet a multinational can make an investment abroad, as a result of which the employment it provides is also counted among the multinationals. Throughout the Dutch business economy – including the non-multinationals – the number of employed persons grew by 3.5 percent. There are fewer Dutch multinationals than foreign-owned multinationals, but Dutch multinationals lead the way in terms of employment. In 2017, all Dutch multinationals together employed around 235 thousand more people than did foreign-owned multinationals (Figure 7.3.2).