Getting large corporations to pay taxes where they do business is as difficult as catching water in a colander. This is demonstrated repeatedly by the accounts of these multinationals. Those corresponding to 2017 reveal that it was a great year for your business in Spain. The Spanish affiliates of Google, Apple, Facebook, Amazon and Microsoft declared net profits of 36.3 million, representing an increase of 11% over the previous year. However, they paid less taxes. They paid the Spanish tax authorities 31.7 million euros in corporate tax, 8% less than the previous year, when they liquidated 34.4 million euros, according to the data of the annual accounts deposited in the Mercantile Registry.
Digital business The activity of these companies is based on the digital economy, the use of data, online advertising or intellectual property, and render the current tax fabric obsolete. Not only in Spain, but throughout the world. Where is a company doing business on the Internet? Where is it located or where does it generate business? Or perhaps where does it add value? And Apple, where should you pay the taxes? Where do you manufacture, where do you design, in the country that innovates or in which you sell your devices? These questions generate doubts that multinationals take advantage of to pay less.
How do they do that?
The strategy that these technological giants follow in Spain is similar to the one they use in other countries. The European Commission and organizations such as the OECD have shown their concern about the holes through which the digital economy escapes. Basically, these companies transfer the bulk of their profits to countries with a more beneficial tax treatment, such as Ireland, the Netherlands or Luxembourg. To do this, they establish their European headquarters in these countries and from them the subsidiaries of the rest of the countries hang. These local branches only act as intermediaries or commission agents, they charge for the support services they provide to the parent company, which is the one that actually sells. Therefore, most of the benefits remain in the Irish nurse.
Another strategy is to transfer the rights of intellectual property
Another strategy is to transfer the rights of intellectual property (the technology of some products) to a group company located in a country with tax advantages, for example, in Ireland. This company would act as the center of business in Europe and would cede the technology to other subsidiaries of the group in European countries in exchange for charging royalties with little margin. In this way, the matrix can increase the income in Ireland at the expense of reducing them in the rest of the countries.
In a similar way, Google moved 20,000 million euros of profits from its European subsidiaries through a Dutch branch to Bermuda Island to avoid paying taxes. This way of acting has aroused misgivings in Bruseas, who has hardened his position on the technological giants. In 2017, Apple was condemned by the European Commission to pay some 13.2 billion euros to Ireland for tax aid granted, which Brussels considers unfair. The community executive has also forced Amazon to return 250 million to Luxembourg for benefiting from tax agreements that violated EU legislation.
These strategies are one of the reasons why GAFAM only declare income in Spain for about 1,000 million, despite the fact that the real business they obtain in our country is much higher. To try to approximate the real number of income in Spain, it would be necessary to start from the global turnover of these multinationals: some 594,000 million euros in 2017, according to Bloomberg. If we apply the percentage of Spain’s weight in world GDP (1.69%) to that total, we would obtain an approximate figure of real sales: about 10,000 million – a study by Netquest consultancy estimates that only Amazon would obtain income in the Spanish market for 4.200 million-.
About 200 million less in taxes
To calculate the gross profit, the current margin of the subsidiaries of these groups in Spain (about 7% of the turnover) could be applied. And if we tax this amount with the tax rate of 25% of corporation tax, the technological giants should pay the Spanish treasury more than 200 million, compared to the 30 million that they pay at present. Other less conservative calculations raise the taxes that GAFAM fail to pay up to just over 500 million a year.
Although they do it legally, they squeeze national legislation to take advantage of the nooks and crannies
This action has aroused some discomfort in public opinion. For this reason, the Spanish Tax Agency has been trying to tighten these multinationals for years. It has inspected from top to bottom to Apple, Google and Microsoft and Facebook. And although it has scratched a good pinch, the result of the annual liquidations is still ridiculous compared to the real benefits that these companies get with their business in Spain.
Even so, as a result of the inspections of the Treasury, these companies paid in 2017 a good amount for the back taxes.
The apple group, for example, disbursed almost 15 million after a review of the Treasury on the liquidations of corporate tax, VAT and IRPF of several years, according to the memory deposited in the Registry. Apple has two subsidiaries in Spain: one deals with stores (the Apple Store) and the other manages sales to department stores and shopping centers. Last year they declared a joint benefit of only 7.1 million, after paying 13.5 million in taxes.
The case of Microsoft is more significant. The Spanish delegation of the company founded by Bill Gates paid last year 11.9 million euros to the Treasury for a historic claim by the Treasury on the corporate tax of 2004 and 2005. The liquidation came after a long fight in the courts. In view of the result, the management of Microsoft tries to negotiate with the Treasury, through a friendly procedure, to shelve another of the disputes with the Tax Agency in the amount of 18.66 million. The management of the company announced in 2017 that it would change the tax scheme to stop paying taxes from Ireland and to do so in Spain. That year he declared profits of 11.6 million after paying 6.8 million in taxes.
The rest of the technological groups have also received the visit of the inspectors of the Tax Agency. In the summer of 2016, a team of 35 tax inspectors broke into the Google headquarters in Spain in search of evidence of tax fraud. The following year the treasury also carried out another operation on the most used search engine in the world. As a result of this action, Google, whose main business is the sale of advertising, paid just over three million euros to regularize corporate tax between 2011 and 2015. In its annual accounts, where it barely provides details of its tax litigation, acknowledges that it still has outstanding accounts with the Treasury for VAT from 2015 to 2017 and companies for the last two years.
The social network has a subsidiary in Spain that adds two years recording losses. Most of his advertising business moves him to Ireland. The Spanish delegation only acts as an assistant for marketing and advertising activities. In 2017 it declared income for only 10.1 million in Spain for which it paid 266,000 euros to the Treasury.
Amazon says it has been paying taxes since 2015 for its business in Spain. I used to do it from Luxembourg. It operates through four subsidiaries: Amazon Web Services Spain, Amazon Spain Services, Amazon Spain Fulfillment and Amazon Online Spain. In addition, it relies on another branch, Amazon EU Sarl, based in Luxembourg, to concentrate the bulk of its business in Spain. As this branch does not present accounts in Spain, its income is not public.