Tax scams for large corporations

A new study shows that digital companies in particular have been able to avoid paying a significant portion of taxes.

FRANKFURT – They make some of the biggest profits in the world and pay the lowest taxes – despite all the reform efforts in the USA, the European Union and the OECD countries. Big digital companies in particular continue to evade access to taxes by cleverly shifting their profits.

This is what was shown by a new study conducted by economist Christoph Trautvetter from the Tax Justice Network, which he talked about Daily news I mentioned first and also Frankfurter Rundschau Present. The study was commissioned by the left in the European Parliament. The collective and annual reports of three large companies, all active in the European Union, were evaluated: Booking.com, Microsoft, and Alphabet (parent company of Google). The result: All reform efforts aimed at encouraging corporations to pay fairer taxes have not been very successful so far. Your tax rate has increased only slightly.

“Tech giants are pulling all the tricks” when it comes to taxes

The left calls for greater efforts to ensure fair taxation. “The tech giants are using all the tricks to reduce their profits by billions,” said Martin Cherdiwan, a member of the European Parliament and a leading left-wing candidate, commenting on the result. “It cannot be the case that Booking.com pays less in taxes than a medium-sized company from Franconia.”

In fact, the Booking.com example shows that “tax evasion works even without a mailbox in a tax haven.” Booking.com is one of the few major European digital companies. The company's headquarters are located in the Netherlands. This is where the lion's share of profits comes from, even though less than half of the group's more than 10,000 full-time employees work there. According to its own information, Booking.com has offices in 71 countries.

However, from a tax perspective, employees in subsidiaries only provide so-called support services for which the parent company pays them. The majority of profits remain in the Netherlands and are therefore taxed there – with an effective tax rate of 15 to 16 percent, according to the study. Taxable profits in the Netherlands are distributed to the US parent company via an intermediary UK company.

“Dutch Piggy Bank”: lower taxes on “innovative activities”

“This structure avoids taxation on three levels: in relation to the high share of profits in the Netherlands and the tax advantage there, in sales tax and in taxation of the distribution of profits,” the study says. Between 2005 and 2022, 3.6 to four billion euros were avoided.

Companies in the Netherlands actually have to pay a 25% corporate tax, but since 2010 a reduced tax rate has been applied to so-called “innovative activities”. It is a moderate percentage of nine percent. The Innovation Fund tax model is therefore also called the “Dutch piggy bank”. The special offer is still noteworthy for the Dutch state: given its high profits, Booking.com paid more than four billion euros in taxes from 2003 to 2021. It has left other states behind.

Microsoft benefits from its presence in Ireland

Microsoft is also suspected of shifting huge profits in order to avoid taxes. The company does this a little differently than Booking.com. According to the study, Microsoft uses a three-step model to avoid taxes. Intangible assets, i.e. software codes for software products such as Windows, are then developed, as well as distribution rights in the USA.

Before these assets are invoiced to subsidiaries, they are moved offshore – to tax havens such as Ireland, Puerto Rico and Singapore. This means that a significant portion of profits is generated abroad. Some forms of tax evasion in Ireland have now been abolished. However, Microsoft still benefits from its presence there: According to annual reports, Microsoft paid about $3 billion in taxes in Ireland in 2020/21, which corresponds to a tax rate of 7.2 percent and is still lower than the official Irish tax rate of 12 percent. .5 percent.

Alphabet also used the Irish tax avoidance model, but shifted most of its profits to the United States. However, the tax rate for this company did not increase, but rather continued to decrease according to the study: in 2022, 15.9 percent was paid in taxes. The reason was a combination of tax concessions that the company benefited from.

Tax Tricks Used by Big Business: 'The Federal Government Has Failed'

Despite the different models, the approach is the same for the three companies: profits are shifted where the least taxes should be paid. It stands to reason that digital companies find this easier than industrial companies because they trade intangible values ​​and services that are easier to transfer.

Such practices are already being investigated in Italy and France, but not in Germany. The main candidate of the German left, Martin Scherdiwan, criticized this in an interview with The Guardian Frankfurter Rundschau“We have to strengthen our powers and get our money back. The federal government here has failed across the board. The study shows that reforms so far have not been enough: “The EU must finally close tax loopholes.”