Back-to-Back Loan - Back-to-Back
loans are matching deposit arrangements. They may
be used in order to solve a financing or exchange
control problem. However, in the case of certain tax
havens, the function of back-to-back loans is to reduce
the taxable base subject to withholding taxes on interest
payments, by interposing an intermediary subsidiary
company between the source of the income and the recipient.
For example, an intermediary company located in the
Netherlands or the Netherlands Antilles may be interposed
so as to take advantage of a favourable tax treaty.
In such cases the authorities usually require a certain
spread or "turn" on the rates so as to create
a small profit which is subject to tax locally.
