Spanish companies use Luxembourg and Malta to pay less tax
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Many Spanish companies use Luxembourg and Malta to pay less than 3% for their foreign companies.
A report by the Tax Agency, which used the methodology of the OECD (Organization for Economic Co-operation and Development), identified how subsidiaries in these offshore jurisdictions allow Spanish multinational companies to pay less tax.
To explain how this works, let’s take a hypothetical case. A Spanish multinational has an important activity abroad but decides to centralize its activity outside Spain, using a subsidiary.
This subsidiary may even exist within the EU, which requires many complex administrative procedures, but setting up businesses in this way allows for a tax reduction for profits generated outside of Spain.
The hypothesis was a practical example, according to the OECD methodology conducted by the Tax Agency, which found that some Spanish multinationals linked to Luxembourg or Malta systematically use the system to pay less taxes.
Although difficult to quantify, especially in such a globalized world, statistics from the Tax Agency show that large companies can pay a quarter of what some SMEs pay. Large companies and employers often dismiss this information, claiming that they have already paid taxes on their overseas activities.
However, this argument disappears when we look at the “Country by Country” report recently published by the hacienda (Spanish Tax Agency) which details that more than a hundred Spanish multinationals use different countries and regions outside the country. Spain to pay less taxes.
The report published by the Tax Agency analyzed 122 Spanish multinationals (names not identified) which have a turnover of more than 750 million euros and have some 15,085 subsidiaries, of which more than 10,000 are abroad.
They total nearly 860,000 million euros in turnover and 91,000 million euros in profits, of which they paid only 16,800 million euros in 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 into the details of the knowledge of the activity of Spanish companies in the territories recognized as tax havens.
Second, in countries where statistics are specified, data refer only to the net profit (profit minus reported losses, if any) of affiliates in each territory. This results in an overestimation of taxes paid and the information of the effective rate paid is in fact higher than the actual rate.
It allows for the first time to analyze the taxation and organization of these multinationals in the European Union and recalls that the territories, without being officially recognized as tax havens, in fact offer large advantages to these companies.
This is not only the case in Luxembourg, but also in Malta. The Duchy of Central Europe appears in the report as the territory where the least tax on profits is actually paid by Spanish companies with subsidiaries resident there.
Concretely, the Fiscal Agency discovered the existence of 93 subsidiaries registered in the country where the effective tax rate is low of 2.9%, a figure very far from the minimum of 15% which had been fixed in the agreement. of the OECD with 136 signatory countries last week. It is also far from the 16.7% that Spanish multinationals pay on average in the European Union.
Malta is the other country that stands out because the 27 Spanish subsidiaries that are established there paid an average of 4.1% of their profits that year. It should be noted that the OECD methodology makes the declared profit by country refer to the profit obtained by subtracting the declared losses. This, in practice, results in an overestimation of the percentage of taxes paid, which may have an even lower effective rate.
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