Dutch Finance Minister Wopke Hoekstra at a teleconference (BART) MAAT / AFP)
PIERGIORGIO M. SANDRI, BARCELONA
At a time when the European States are trying to secure funding to the desperate to sustain the cost of coronavirus pandemic control, a new study published yesterday by the Tax Justice Network’s economist platform recalls that every year the bulk of European countries stop entering some 25 billion euros in corporate taxes.
And that’s because big companies declare less than they should in their accounts for profits. And where does this money go? To tax havens still roaming Europe, which the European Union does not dare to regard as such (it would need political unanimity, which is impossible). And what are these countries? The usual suspects: Luxembourg, Switzerland, the Netherlands and the United Kingdom (rather their annex territories): all of them are responsible for half of the tax avoidance of corporation tax in the world, according to Tax Justice Network.
About 10 billion leave Spain every year in search of low taxation to these countries
Spain, in particular, ceases to enter public coffers in corporate taxes of some 2.3 billion euros (which is equivalent, according to the study, to 2.5% of its health expenditure), because every year they travel outside their borders, so to speak, about 10 billion euros to low-tax territories within Europe itself.
According to figures run by the IMF (year 2019) cited by Intermon Oxfam, tax havens within the EU take 80% of all money from companies leaving Spain in a view to minimising the tax burden. The Netherlands generates a loss of resources to the Spanish treasury of 1.170 million each year, Luxembourg of 800 million and Ireland of 550 million. For the flight of profits to these three countries, Spain loses 9.6% of the collection of corporation tax.
What do these countries so attractive? It’s not necessarily about evasion or illegal practices. Nor does it have to do with banking secrecy, an instrument that, at least on paper, has disappeared as such, but these economies, because of their tax system, open the way to financial engineering practices that allow multinationals, especially American ones, to pay less.
For example, Luxembourg, according to ICEX, is one of the countries with the lowest number of taxes to pay and also enjoys one of the lowest Total Tax Rates (20.1%), with the global average being 40.8%.
The Netherlands, which these days is being very reluctant to mutualize European debt to finance the Covid-19 aid scheme in southern Europe, allows royalty payments to be made to tax havens abroad, without incurring Dutch withholding taxes. The so-called Dutch sandwich is like a backdoor out of the EU corporate tax system to overseas territories.
From Tax Justice Network they give some example: a coffee company can set the headquarters of the intellectual property of its brand in Luxembourg, where the effective tax rate of companies is 0.8%, and then charge its subsidiary in Italy a fee to use the brand. For each cup of coffee purchased in Italy, the subsidiary in Italy would pay the Luxembourg subsidiary a percentage, thus reducing the profits made in Italy.
Another ploy to hide profits is for a corporate group to lend itself money with interest. A subsidiary in the Netherlands that provides a loan to a subsidiary in France would receive interest on loan repayments, which would help transfer the proceeds from the French subsidiary to the Netherlands, where less is paid.
These days Denmark or Poland said they will not provide financial aid for the pandemic to companies based in low-tax territories. According to an October study by Intermon Oxfam, some 805 subsidiaries of Ibex companies are in tax havens. Highlights include Banco Santander, ACS, Repsol and Ferrovial. Incidentally, in 2018 Google-Alphabet declared 22 billion revenue in Bermuda. Corporation tax there is type zero. The multinational said it won’t.