Jesse Drucker reports for Bloomberg this morning that:
Zara's celebrity chic helps make its Spanish parent company, Inditex SA, the world's biggest fashion retailer.
But, as he notes:
[There's a] reason for Inditex's industry-best profit margins of almost 15 percent: the company uses the kind of tax loopholes coming under increasing scrutiny from international regulators.
In the past five years, Inditex has shifted almost $2 billion in profits to a tiny unit operating in the Netherlands and Switzerland, records show. Although that subsidiary employs only about 0.1 percent of Inditex's worldwide workforce, it reported almost 20 percent of the parent company's global profits last year, according to company filings.
Now you can see why we need a Fair Tax Mark.
The story is well worth reading in full. It's the almost inevitable story of the Netherlands and Switzerland, royalties and transfer pricing, and vast amounts ending up in mysterious subsidiaries that appear to earn income far beyond any potential worth they might have.
For those with a conscience, here's another one to add to your list of companies to avoid.
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Interesting. Especially that they only pay 16% tax in Netherlands where full rate is 25% and also interesting to see they weren’t prepared to explain that or discuss their tax position in Switzerland.
I suspect their business model is fairly standard – basically the ‘entrpeneur/Intellectual Property Holder’ sells to local distributors who operate on a limited risk model – the ‘entrepreneur’ company takes the remaining/residual profit – hence why Italy, UK etc. only have margins of 3% – 5%. A perfectly acceptable model under the OECD transfer pricing rules so per se nothing wrong with that, but …
What stands out here though in my mind is the low rate of tax the ‘entrepreneur’ in Netherlands/Switzerland is paying and one has to question whether it’s really staffed up enough to justify being the real ‘entrepreneur’ and hence being the main profit centre.
Since the Fair Tax Mark can’t be gained by multinationals it’s not going to help much here.
It will be offered to them in due course
As the tax expert and arbiter of the scheme, you are not going to be able to cope with a deluge of applications. How are you thinking to handle a number of complex multinational accounts as well?
We’ll worry about that when deluged
We have plans