Until now, large groups were moving around the world with many underpaid workers and billions who, above all, every year vaporized in the middle of the Atlantic. These fiscal engineering champions, giants like Apple, Google, Starbucks or Ikea but also giants from other sectors like Starbucks or Ikea, have managed to pay less and less taxes.
The world was fed up with seeing various Jeff Bezos, Zuckenberg and others getting disproportionately rich as their companies played hide and seek with the taxman globally.
Fortunately, the rules seem to have changed since the G20.
Under the pressure of Joe Biden, the rules of the game begin to change: after almost eight years of negotiations, an international agreement has finally been reached to put an end to these practices.
The latest G-20 in fact validated this Saturday the agreement reached in the OECD to set a minimum corporate tax to multinationals and establish a system for them to pay where they operate, even if they do not have a physical presence.
Multinationals divert nearly 40% of their profits into low or zero tax territories each year through sophisticated fiscal engineering favored by globalization and digitalization of the economy.
According to researchers from the universities of Berkeley and Copenhagen in 2017, the diversion on evaded taxes amounted to almost 600,000 million euros.
The beneficiaries of almost all of these amounts are not the Caribbean paradises but the European neighbors, with Luxembourg, the Netherlands and Ireland in the lead.
Ireland, after the Great Recession, has experienced a spectacular growth rate of over 25%. In large part due to the huge influx of foreign investments attracted by the tax advantages offered by the country. The 12.5% rate coupled with other facilities led to an unprecedented economic boom.
One of the most used “tricks” by foreign multinationals was the so-called double Irish scheme. Google, for example, has transferred billions to the Bermuda Islands in recent years, which does not tax corporate profits.
And what was the system used? Through a company located in Dublin and another in the Caribbean archipelago, with which Ireland has an agreement. The first invoices all income generated in other markets as local branches are considered commission agents. Subsequently, he pays large sums to the Bermuda-based company for the use of the intellectual property rights, technologies, patents, etc., which he owns.
Furthermore, the prices of these rights are not public and their market value is practically impossible to establish. How much is the Apple brand worth? And what is the price to pay for using the internationally known McDonald’s name? A real question mark.
Dublin agreed to eliminate the “double Irish” in 2015 under European pressure, but allowed companies to use it until 2020.
Another “clever” is a triangulation scheme known as a “Dutch sandwich”.
Holland offers big tax advantages to the big names.
The ‘Dutch sandwich’ system is often combined with the ‘double Irish’. A third company is created in the Netherlands and another in a low-tax territory, such as the Netherlands Antilles. The Irish company pays royalties to the Dutch intermediary company for the trademark usage rights, which are tax free, which in turn redirects them to the more tax-friendly jurisdiction.
Another escape route for multinationals is the tax ruling, agreements between companies and states that establish more advantageous “tailor made” tax regimes.
The most striking case was the leak known as LuxLeaks: in 2014 the International Consortium of Investigative Journalists discovered secret agreements between the Luxembourg government and more than 340 multinationals, signed when the Grand Duchy was at the helm of the former president of the European Commission. Jean-Claude Juncker.
Among the companies involved Ikea, Pepsi, Amazon, Apple and the bank HSBC, which paid on average, between 1% and 2% in taxes.
The tax ruling sets out in advance the tax treatment a company will receive and they are not illegal as long as they do not represent a competitive advantage that distorts competition. The EU Court, for example, forced Fiat to return 20 million to Luxembourg in 2019, believing that the special scheme it had benefited from assumed state aid. However, it ruled in the opposite direction in the case of Starbucks, which had a tax agreement with the Netherlands.
Cyprus and Malta also offer generous tax advantages. Malta actually has a corporation tax of 35%, much higher than the EU average. But only on paper, because the rate is reduced to a minimum thanks to a generous refund system.
In recent years Cyprus has improved its transparency, but it is not one of the countries that participated in the OECD negotiations, so it has not even signed the agreement.
According to the IMF, more than six trillion euros are hidden in tax havens around the world, thanks to obscure systems and almost non-existent tax rules.
The independent Tax Justice Network (TJN) places the Cayman Islands, the United States and Switzerland at the top of its Financial Secrecy Index, a ranking that measures the degree of financial transparency. Hong Kong appears in fourth place, followed by Singapore. Luxembourg and the Netherlands are sixth and eighth in the ranking of 133 countries.
But not only the multinationals are evaded but also the richest taxpayers, which cause about 360,000 million in direct losses for the national public coffers. About 200,000 million are due to the diversion of profits from multinationals; the rest to conceal the fortunes of the richest.
A dirty story that never seems to end.