Enormous Profit, Miniscule Taxes

In Europe there are moves to make large companies pay taxes in the country where they operate, known as “The Google tax”. This also applies to Microsoft, Apple, Facebook, Twitter and Amazon. Spain has already passed a “3%” tax but they are waiting for a comprehensive ruling from the EU before they try to enforce it. Paying the least amount of tax comes under the heading of “tax avoidance”, generally legal, rather than the illegal “tax evasion.”

Twitter Spain, using the last declared figures from 2018, recorded a net profit of 221,000 euros from revenues of 4.5 million euros, up 0.4% on 2017. This figure is grossly less than it really was because it only applied to income from marketing, advertising and business development services to Twitter International based in Ireland. This is a well tried policy for the other giant companies as corporation tax in Ireland is only 12%. They declared 4.18 million in operating costs so consequently, the corporation tax that Twitter Spain paid to the Spanish tax man was only 113,000 euros. This is 20,000 euros less than the average salary for their 19 employees.

The EU list of countries that they classify as being tax havens are American Samoa, Guam, Samoa, Trinidad and Tobago, and the Virgin Islands. Economists in Europe consider that Belgium, Cyprus, Hungar y, Ireland, Malta, the Netherlands and Luxembourg have aggressive taxation avoidance that makes them a tax haven. The Grand Duchy of Luxembourg only covers 2,600km2 but the capital has 69% of the 600,000 inhabitants, and 48% of the population come from other countries. Economists say that in Luxembourg the larger the multinational company the less they pay in taxes.

Luxembourg is the second smallest EU state after Malta, but they are home to 137 banks from 58 countries. Investment managers handle funds of 4.2 trillion euros, four times the Spanish Gross National Product. Various effectively tax haven countries claim that they should be free to set up their own fiscal rules, claiming that competition is a good thing and their regulations are entirely legal.

Amazon’s European Headquarters

Amazon’s European Headquarters are based in Luxembourg in a very modernistic glass building where 2,000 employees have nothing to do with sending out packages as they comprise a technology section, human resources department, lawyers and tax executives. In 2017, the EU ruled that Amazon had to pay Luxembourg 282 million euros for illegal a c c o u n ta n c y s c h e m e s a n d ta x b r e a ks , b u t Luxembourg doesn’t agree and are appealing the order to the European Court of Justice. Meanwhile, the money is parked in an escrow account waiting for the final verdict. The EU have made similar orders of back tax payable that applies to Starbucks based in Holland, 35 companies based in Belgium and a handful in Gibraltar, but the largest amount relates to Apple. They have been ordered to pay 14.2 billion euros including interest to the Irish taxman. Just like Amazon in Luxembourg, the Irish government is fighting the decision in case it means that other companies don’t choose Ireland as their fiscal base.

Brexit talks between Spain and the EU regarding Gibraltar focus on a number of issues and a tax haven is one of them. With 30,000 inhabitants there are 55,000 companies that have their registered head offices there with much reduced tax liabilities. Spain has been complaining for years that many Spanish companies, who have nothing to do with Gibraltar apart from their registered head office, are avoiding large amounts of Spanish corporation tax. Spain sees Brexit as a good way to stop this.