Those Tax Dodging Scumbags At Zara!
WE’RE well used to hearing stories about how the tech companies, Apple, Google and the like, are dodging taxes all over Europe. But people are starting to realise that it’s not just that sector. Many other multinationals are indulging in very much the same behaviour:
Another 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.
Inditex is the company that owns Zara….so there’s another place you can’t go and buy your clothes from.
Well, actually, sorta. Because what they’re doing is that they’ve got the brand names, the people who know how to design a shop and all that, stashed away in a Dutch company. All the stores and companies that own stores in different countries must pay royalties and fees to that company. That’s the allegation: that these royalties are in some manner dodging tax as a result.
There’s two problems with this. The first is that the company can only delay tax by this method. If they take the profits out of the Dutch company and send it to HQ so that it can be spent on dividends, returned to shareholders which is the point of a company after all, then that profit will be subject to the full and usual amount of tax. So they can park these tax lite profits somewhere, use them to expand the business maybe, but they can’t actually get them out of the company without paying that higher tax rate.
The second thing is that this isn’t really tax dodging either. Not within the EU it isn’t, as the EU’s own law makes clear:
The I+R Directive is designed to eliminate withholding tax obstacles in the area of cross-border interest and royalty payments within a group of companies by abolishing:
withholding taxes on royalty payments arising in a Member State, and
withholding taxes on interest payments arising in a Member State.
These interest and royalty payments shall be exempt from any taxes in that State provided that the beneficial owner of the payment is a company or permanent establishment in another Member State.
As long as royalties are being paid from one EU state to another then it’s actually illegal to try and tax them. And if we’ve got a law like that then obviously it cannot be tax dodging if people do send royalties around the place.