In 1985 Jonathan Dawes (as always, the name has been changed for privacy reasons) was the head of a Netherlands conduit Trust that was serving ‘Dutch sandwiches’ to very wealthy North Americans – many of whom were household names in the Entertainment world. Jonathan was not a chef, since the Dutch sandwiches were not even edible. It’s a nickname of a tax structure involving one company from Holland and one from the Netherlands Antilles that are using a favorable tax treaty to reduce the US tax obligation on royalty and patent income flowing from the United States. Jonathan was rolling in the dough and his Trust had so much clout that they managed to negotiate a ½% withholding tax with the Dutch Government.
I met up again with Jonathan in 1989 during a seminar at Harvard Business School. You couldn’t tell by his $5,000 suit and $1,200 shoes that he worked for the government, but his new position was an advisor to a US congressional committee that was looking at ways to deal with the growing problem of offshore tax shelters. Very appropriately, the US Congress had put a fox to guard their hen house, but the real question was why would a man, with a mid seven figure earning potential, get a government job? I found this very puzzling because he wasn’t even in a position to accept bribes. Then, I made the connection with the Dutch Sandwich and the treaty enabling a couple of tiny islands, with less than 200,000 inhabitants, to legally siphon millions of tax dollars out of the US government coffers. A small group of lawyers and accountants could skillfully bury (for later exploitation) a couple of obscure clauses in a voluminous piece of legislation. The implications of such trivial clauses will go unnoticed by non experts (like Congressmen) but would effectively be giving to the advisors the keys of the hidden back door to the vault of the treasury.
Given our failing socioeconomic, legal and political predicament, I don’t know if we should laugh or cry about all this but the science of fabricating loopholes became clear to me at this early stage of my career.
Using loopholes, the experts make it possible to legally do what appears to most people as something that should be against the rules. As more people learn about the loopholes they seize to exist but the seasoned government advisors always manage to replace them with new ones. So the Dutch sandwich became extinct because the USA unilaterally revoked the treaty in 1987. And Jonathan was back to the USA working tirelessly at protecting the economy from offshore wannabes that couldn’t afford his fees.
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