Spain's revenue from taxes on businesses has shrunk by two thirds as compared to pre-crisis levels. Spain's large global companies are seeking profits abroad and shelter in tax havens.
While Spanish Prime Minister Mariano Rajoy is busy passing an $84 billion U.S. package of austerity measures, some Spanish-based global corporations are increasing profits abroad as the Spanish economy remains weak. Rajoy has been reluctant to increase burdens on the corporate sector since that sector is key to reducing Spain's high unemployment rate.
Spain is home to such global corporations as Santander in the banking sector, Telefonica in telecommunications, Repsol in oil, retailer Inditex, and BBVA. Those five companies generated profits of 17.8 billion euros last year. This profit is greater than the 16.6 billion euros the government managed to raise in taxes from 1,400 Spanish businesses. Back in 2007 the government raised 44.8 billion euros in taxes.
Carlos Cruzado, chair of the Treasury Ministry Trade Union said:
"Big corporations are paying less and less in taxes. Their profits have not fallen at the same pace that their (Spanish) tax contribution has fallen."
Many large Spanish corporations continue to earn profits abroad even as their situation in Spain worsens. Usually, these profits are taxed where they are earned and hence the Spanish government receives nothing. Less and less in tax revenue flows into Spanish government coffers. Spanish corporations pay less in tax as a proportion of their income than do individuals. The rate on profits is11.6% on total profits while on individual income it is 12.4%, according to data from the Spanish Tax Agency. Moving production to foreign markets helps companies avoid taxes at home.
In 2010, most of Spain's blue chip international companies had subsidiaries in tax havens.according to Spain's Observation Group for Social Corporate Responsibility. Only 5 of 35 companies did not have subsidiaries in tax havens. Before the economic crisis began only 18 out of 35 corporations had subsidiaries in tax havens, just a little more than half.
The tax rate in Spain on corporations is in line with other large European economies however some countries such as Switzerland have much lower rates. A global tax lawyer based in Spain noted: "A fundamental right of EU law is the freedom of establishment. All companies and taxpayers look after their tax affairs, and if they can pay a lower rate somewhere else, it's better for their business and natural that they would do so."
Inditex, the world's biggest retailer of clothing, showed a pretax profit rise of 10.3% in 2011. However, the percentage it paid on the profits dropped from 25% to 24%.
The fall in Spanish tax revenues is also due to the failure of thousands of firms connected to the real estate and construction areas after the crash in 2008. Included are many regional banks that lent too eagerly during the boom.
The government's policy has been to concentrate on spending cuts rather than increasing corporate taxes although Rajoy did eliminate some tax loopholes. Declining tax revenues will make control of Spain's debt even more difficult than it already is.
This opinion article was written by an independent writer. The opinions and views expressed herein are those of the author and are not necessarily intended to reflect those of DigitalJournal.com