The Suddeutsche Zeitung has a story this morning on country-by-country reporting and German corporate tax abuse this morning. As they note:
The hope lasted only a few days, and now it has come to a standstill again. At the end of November, the European Council had reached a compromise, the tax reform for companies in the EU was to be adopted, and the necessary majority had emerged. The draft directive was intended to make it more difficult for companies to transfer their profits to low-tax countries and to artificially reduce their tax burden. According to the plan, companies with an annual turnover of more than 750 million euros should in future publish how much turnover and profit they generate in individual countries and how much tax they pay there.
The hoped-for narrow majority, however, did not materialize. Once again, this was also due to disagreement within the Federal Government: Federal Finance Minister Olaf Scholz now supports the new transparency obligations. But the CDU-led Federal Ministry of Economics is blocking - the resistance of German SMEs is too great. They speak of a tax pillory and fear competitive disadvantages if they have to disclose too much. Germany abstained from voting, which is considered a "no" in Council decisions.
It is a well known fact that Germany has become one of the great obstacles to overcome for those who support country-by-country reporting.
And it's not as is they do not have a problem with the issue. Based on the work of an Australian friend of mine, Jason Ward, the paper has a report on German corporate tax non-payment. As they note of a new report from the Tax Justice Network:
The study is entitled "Unhealthy Business Practices" - and it shows that it is by no means only U.S. digital companies that are moving their profits to low-tax countries. The central accusation is that the Bad Homburg-based group uses traditional methods to break down its tax burden in places where corporate taxes are comparatively high.
As they report:
Although the company employs 32 percent of its staff in Germany and generates more than a fifth of its worldwide turnover, it is still in Germany that the company has its headquarters. While the Dax Group shows high profit margins on a global level, profitability in Germany - at a tax rate of 30 percent - is, however, half as low. In India, where the tax rate is 35 percent, the subsidiary operating there has been making a loss for years. In Australia, at a tax rate of 30 percent, Fresenius Kabi has not made any taxable profits for three years. This is in line with the fact that Fresenius is represented in almost all known tax havens, with branches in the Cayman Islands and the British Virgin Islands, Hong Kong, Delaware, Singapore and Panama, among others.
And they add:
According to the study, Fresenius also uses the classic means of reducing the tax burden in high-tax countries, such as internal company loans. In 2017, for example, the Irish Fresenius subsidiaries made a profit of 47 million euros just by granting loans to group companies in Spain and the USA - purely virtually, without employees. Fresenius listed about 2000 subsidiaries in 2014 before the Group stopped publishing this list. Such a clear global imbalance is no surprise. The company reports its profits disproportionately where corporate taxes are low. As a result, the global tax rate is significantly lower than what Fresenius would have to pay in taxes in its most important markets. Although the Group achieved an effective tax rate of 32.1 percent in Germany in 2018, it also has remarkably few taxable profits.
The TJN report notes:
This case study shows that profit relocation and transfer pricing are not reserved for US technology giants, but are used by most multinational companies, including large corporations.
The company does, of course, disagree.
The point is that we need data to resolve the rights and wrongs of such cases. And so do all the stakeholders of the company need that data. That is what country-by-country reporting was designed to deliver.
And the really big question is why is the German government so captured by corporate interests that it will not provide this data, even at cost to itself and the people of Germany? What are some trying to hide?
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I think the mistake is to believe that Germany can show the UK a better way of operating. Certainly it can in perhaps employment relations, workers on company boards etc.
But, Germany has food banks, tax dodgers, burns lignite, usw, buys dodgy wine from Austria (OK a long time ago!) – much more similar to us than we imagine.
They are people just like us – the good, bad and indifferent. So it should not be a surprise that the same old sh#t turns up wherever you look.
“This case study shows that profit relocation and transfer pricing are not reserved for US technology giants, but are used by most multinational companies, including large corporations.”
It’s a category error, I suspect, to regard German corporations as being German in the globalised world.
Rather as the ECB cannot hope to have a stable common currency without a common tax policy, the globalised world cannot have tax Justice without international standards. The US doesn’t ‘do’ international except on its own terms so any other country which wants to be a contender has to join the race to the bottom. Sometimes I wonder if the UK has already arrived in the basement, but that’s probably unjust.
This relates to Brexit of course where a large amount of funding for the Conservative Party comes from the City of London where advising on means of reducing and evading company tax is a bread-and-butter staple enterprise!
The Germans can fiddle their taxes along with the rest of us. For many years rich Germans stashed it in Switzerland, but that route has been largely closed off now (a whistle-blower gave a list of Swiss accounts to the German tax office a few years ago if you recall). The restaurant that I did whisky tastings for every year since 2013 were never interested in a VAT receipt for the whisky, for example, as if they claimed back the vat on that they would have to explain where the whisky went. Which they did not want to do as all the €50 a head tickets were sold for cash with no VAT declared. In fact it is worth noting that nearly 80% of all transactions in Germany are still made in cash, so lots of opportunities for restaurants, shops, etc to have a bit of that flow ‘unter dem Tisch’.
More seriously the CDU and especially the CSU are so right wing they would make Attila the Hun look like a socialist so not surprising they are rather pro-business. However, I was reading the other day that in 15 years Angela has never cut any tax, not even the re-unification levy that was supposed to have ended in 2011, probably because the obsession with paying off the entire National Debt trumps any desire to cut tax bills (though clearly a bit of chiselling by your mates is fine).
The Finance Minister is supposed to be from the SPD who are meant to be a bit like our Labour party, but he seems to have gone rather native after too long in a CDU / Angela coalition.
You might also note that German corporation tax is not the end of the matter. I have a few shares in Daimler AG and am always annoyed that Angela deducts 25% of my annual dividend in a Foreign Owners Withholding Tax. I don’t get any services from the German state and can’t even get a German passport despite being married to a German for 30 years so it grates! In fact there is an anti-social / selfish element in the behaviour of the German government as they are not really repaying the National Debt at all, but rather just transferring it onto other countries in the Eurozone by running giant trade and budget surpluses that are everyone else’s deficits. It is like London going ‘we are just fine’ while the rest of the UK is driven into the ground.
Thanks Richard, the report in Germany and English and a very long detailed report on Fresenius can be found here: http://cictar.org/fresenius/
As I multinational giant that generates virtually all of its global revenue from public funding for healthcare, shareholders and governments should demand that they immediately implement the new GRI Tax Standard, including public CbCR!
Thank you Jason!