Conduit jurisdictions: the countries that are just a stop on the way

Not every tax-friendly country is a final destination. Some are stopovers. A conduit jurisdiction is a country that income flows through on its way from where it was earned to where it will rest, picking up a tax treaty benefit in transit. Unlike a pure "sink" such as Bermuda or the Cayman Islands, where the money simply stops and disappears, a conduit is usually a respectable developed economy whose web of tax treaties makes it a useful intermediate stop.

The five conduits, by the numbers

Peer-reviewed network analysis (Garcia-Bernardo and colleagues, 2017) identified five dominant global conduits: the Netherlands, the United Kingdom, Switzerland, Singapore and Ireland. Together they channel about 47% of all corporate investment flowing out of tax havens. The Netherlands leads at around 23%, the UK at 14%, Switzerland at 6%, Singapore at 2% and Ireland at 1%. These figures predate the post-2015 reforms, and we flag that, but the structure of the system they describe is intact.

For the pure sinks, the Tax Justice Network's Corporate Tax Haven Index (the October 2024 edition) ranks the worst offenders. The top five are the British Virgin Islands and the Cayman Islands, then Bermuda and Switzerland, which the index scores level at the top, and Singapore. The British Virgin Islands, the Cayman Islands and Bermuda each score a perfect 100 for the legal room they give to avoidance. Three of the top four are UK Overseas Territories.

How a conduit earns its keep

The point of routing money through a conduit is to avoid withholding tax, the tax a country charges when income leaves it for abroad. A direct payment from a high-tax country to a tax haven would often attract a hefty withholding charge. Routed through a conduit that has a favourable treaty with the source country, and another favourable treaty onward, the income arrives at the haven having paid little or nothing along the way. The Netherlands earned its place largely through a broad "participation exemption" (dividends and gains from qualifying subsidiaries are simply exempt) and a treaty network that strips withholding tax off income passing through.

Treaty shopping, in one example

Treaty shopping is the practice of slotting a company into a third country purely to borrow that country's tax treaty. The classic case ran through Mauritius into India. For years, the India-Mauritius treaty handed the right to tax capital gains on Indian shares to Mauritius, which did not tax them. An investor who was not really Mauritian at all would set up a Mauritius letterbox company to hold the Indian shares, and the gains escaped tax in both countries.

That route is largely closed now. A protocol signed on 10 May 2016 means shares acquired on or after 1 April 2017 are taxable in India at full domestic rates. Singapore's treaty with India tracked the Mauritius one and lost the same benefit at the same time. And in January 2026, India's Supreme Court ruled (in a case brought by a US investment group over an indirect transfer of shares in an Indian e-commerce company) that a Mauritius tax residency certificate is not, by itself, conclusive proof of treaty eligibility, and that India's general anti-avoidance rule can override it. The court went further than many expected, holding that the anti-avoidance rule can apply to a benefit arising on or after 1 April 2017 even where the investment predates it. We describe the Mauritius capital-gains route as historic, because it is.

The OECD's answer to treaty shopping (BEPS Action 6) is a principal-purposes test: a treaty benefit is denied if obtaining that benefit was one of the main purposes of the arrangement. Countries inserted it into thousands of existing treaties at once through a single multilateral instrument signed in June 2017, rather than renegotiating each treaty one by one.

Hybrid mismatches, briefly

A hybrid mismatch exploits the fact that two countries can classify the same thing differently. A financing instrument might count as debt in one country (so the payer deducts the interest) and as equity in another (so the recipient treats the receipt as an exempt dividend). The result is a deduction in one country with no matching taxable income in the other: a payment that is deductible somewhere and taxable nowhere. The OECD's fix (BEPS Action 2) is to deny the deduction in the payer's country, with a backup rule forcing the recipient's country to tax the income if the payer's country does not act. The EU made these rules binding from 2020, with the rules on certain hybrid entities following in 2022.

How the tools combine

A real large-scale structure rarely uses one mechanism. A typical one stacks them: strip operating profit out as royalties to a low-tax IP company; route those royalties through a Netherlands conduit to dodge withholding tax; layer on intra-group interest to a Cayman treasury company; structure the financing so it is debt in the high-tax country and equity in the recipient; and price every internal transaction just inside the arm's-length tolerance. Each layer is individually defensible. The combined effect is a global business reporting thin profit almost everywhere it actually trades.

Who it is out of reach for

Conduit structures are the most advanced tool in the kit and the furthest from reach. They need entities in three or more countries, advisers who understand the treaty network of each, and enough income flowing across borders to make the withholding-tax saving worth the cost of the structure. A domestic business has no cross-border flows to route and no withholding tax to avoid. This is the tool of the largest groups, and of nobody small.