A hypothetical case. A Spanish multinational has an important business abroad but decides, by organization, to centralize its activity outside of Spain in a subsidiary. That subsidiary may even be within the EU, which administratively facilitates many procedures. And, in addition, this company can allow you to reduce the tax bill for these benefits generated outside of Spain to the maximum and without the hassle that the presence in a tax haven may entail for your reputation. This hypothesis has much of a practical example, according to the X-ray carried out by the Tax Agency of how some Spanish multinationals from countries such as Luxembourg or Malta use themselves to pay less taxes.
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The open debate within the Government that has concluded in the approval of a minimum rate of Corporation Tax of 15% for companies that invoice more than 20 million euros has once again brought to the fore the question of how much the large companies really pay Spanish companies for this tribute. Although it is difficult to quantify, especially in such a globalized world, the statistics of the Tax Agency show that large companies can pay a quarter of what some SMEs pay.
Large companies and employers often reject this information, ensuring that this occurs because they have already paid for the benefits of their activity abroad. However, an important part of this argument falls off when one goes to the report ‘Country by country’ published by the Tax Agency recently and which details how much more than a hundred Spanish multinationals actually pay in the different countries and regions outside of Spain. It is a document based on a methodology shared with the OECD and used by the different tax administrations to try to have greater control so that the taxation of companies is carried out wherever their activity is actually carried out.
The report published by the Tax Agency analyzes 122 Spanish multinationals (not identified) that have a turnover of more than 750 million euros and have some 15,085 subsidiaries, of which more than 10,000 are abroad. They add up to almost 860,000 million of turnover and 91,000 million of profit, of which they have paid 16,800 million of Corporation Tax. Although this latest report, which refers to 2018, includes more data than in previous editions, it still has some limitations. In the first place, it does not go to the detail of knowing the activity of Spanish companies in territories recognized as tax havens. Second, in the countries where the statistics are specified, the data refer to the net profit (profit minus the declared losses, if any) of the subsidiaries in each territory. This causes the taxes paid to be overestimated and the information of the effective rate paid is higher than the real one.
It does allow for the first time to analyze how these multinationals are taxed and organized in the European Union and to point out the territories that, without being officially recognized as tax havens, do provide broad advantages for these companies. This is the case in Luxembourg, but also in Malta. The Central European duchy appears in the report as the territory where the least taxes on profits are actually paid by Spanish companies with subsidiaries there. Specifically, the Tax Agency has encrypted the existence of 93 registered subsidiaries in the country and the effective rate is 2.9%, a figure very far from the minimum 15% that has been set in the OECD agreement with 136 signatory countries last week. It is also far from the 16.7% that, on average, Spanish multinationals pay in the European Union. Malta is the other country that stands out because the 27 Spanish subsidiaries that are located there paid an average of 4.1% of the profit that year. It should be noted that the OECD methodology makes the reported profit by country refer to the profit obtained by subtracting the declared losses. This, in practice, can cause the percentage of taxes paid to be overestimated, which may have an even lower effective rate.
Denmark, Portugal, Cyprus or Ireland are other countries where Spanish multinationals pay less than the EU average, although with data higher than those of Luxembourg and Malta. In contrast, Austria, Slovakia and the Czech Republic stand out on the opposite side, having the highest effective rates for Spanish subsidiaries, reaching 46%.
Luxembourg once again stands out as a fiscally very attractive territory for companies in our country. Something similar happens in the financial sector, from where funds and sicavs of the Central European country have not stopped capturing billions of euros of savings from Spanish investors. However, Luxembourg is not exactly a large market, with 626,000 inhabitants it does not have a consumer or economic activity that justifies the presence of Spanish companies beyond the tax incentives that the country boasts.
The data show, in fact, that the Spanish subsidiaries in Luxembourg are not exactly nourished by their activity in the country itself. Of the more than 2,800 million in income declared by the 93 companies based in the duchy, more than 72% did not come from their own activity but from other entities of the group. In other words, companies that are registered in Luxembourg are mainly fed by other subsidiaries, which is usually an indication that they serve to channel the activity of other companies in the company from a tax-friendly territory such as the duchy.
The Netherlands is the other country where this reality occurs. In this case, 60% of the almost 6,000 million euros of income recorded by the Spanish subsidiaries come, in turn, from other subsidiaries of the group. Both Luxembourg and the Netherlands have been repeatedly identified as a destination for large multinationals to bundle their activity outside their home country and reduce the percentage of taxes actually paid on profits. Ireland or Cyprus are other territories where more than 45% of the turnover of the Spanish subsidiaries comes from other companies in the group. In the rest of Europe it is less than a quarter.
It is not the only data that shows that the actual activity of these subsidiaries is not where they are registered, it is the workforce. Spanish multinational companies in Luxembourg stand out not only for their low effective tax payment rate, but also for being the ones with the fewest employees on average: five. In Malta, the second country with the lowest effective rate, there are 13 employees on average per subsidiary; while in Cyprus there are 9. The average of the Spanish subsidiaries in the EU is 195. Dividing the profit by the number of employees in the different countries, the EU average is 35,000 euros, which shoots up to 753,000 in Luxembourg, 578,000 in Malta, or 273,000 in Cyprus.
Looking back at the general data on the activity of the 122 Spanish multinationals analyzed by the Tax Agency, the great difference that exists between them in terms of the amount of taxes they paid counting on their activity abroad stands out. There are about twenty of them, which the agency does not identify, which have a really low tax bill. Specifically, they pay 1.9% of their profits in Corporation tax. A figure that is even significantly lower than what Spanish companies that invoice more than 1,000 million pay on average and whose effective rate is above 5%.
To those 20 are added another 36 Spanish multinationals that have an effective rate of less than 15%, which in theory is the one set in the global agreement reached to mark a floor for the taxation of companies and thus avoid competition between countries. There are, however, Spanish multinationals that far exceed that figure. There are 31 companies analyzed by the Tax Agency that have an effective rate higher than 25%, with an average of 32%.
The great imbalance between multinationals is found in that the 20 that pay the least taxes account for almost 20% of the benefit of the 122 studied and, however, they barely have a weight of 2% of the total in terms of taxation. In contrast, the 31 that have a higher effective rate account for 32% of the profit but more than half of the taxes paid by the Spanish multinationals studied.
With these wickers, large Spanish companies will begin, as of January 1, if the General State Budgets are approved, to be obliged to pay a minimum of 15% of their tax base (the profit from which certain adjustments are deducted ) in Corporation Tax. Ultimately, it will not be about profit, as some voices claimed, which would have considerably increased its effect. The Treasury estimates that there will be 400 million more in income and will affect a thousand companies. As far as foreign affiliates are concerned, the global minimum 15% agreed upon in the OECD is not expected to be in force until 2023.