* Big business profits outstrip total corporate tax intake
* Small firms still hurting from domestic downturn
* Gov't wary of tax measures that discourage investment
By Tracy Rucinski
MADRID, Oct 3 Spain's corporate tax take has
tumbled by almost two thirds from pre-crisis levels as small
businesses fail and a growing number of big corporations seek
profits abroad to compensate for the prolonged downturn at home.
Attractive tax benefits can accrue to companies expanding
overseas, but for Prime Minister Mariano Rajoy's government,
which now seems resigned to accepting a European financial
rescue, the income flow is reversed.
Rajoy has passed 65 billion euros ($84 billion) of austerity
measures including public sector wage cuts and consumer tax
hikes but has been reluctant to lean on businesses that are key
to maintaining jobs when one in four Spaniards is unemployed.
Despite its domestic woes, Spain is home to globally
successful corporations such as banks Santander and
BBVA, telephone operator Telefonica, retailer
Inditex and oil company Repsol.
Those five generated net profit of 17.8 billion euros in
2011, outstripping the 16.6 billion euros the government raised
in corporate tax from a total 1,400 Spanish businesses that
year. In 2007, the corporate tax take was 44.8 billion euros.
"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," said Carlos Cruzado, chairman of
Treasury Ministry trade union GESTHA.
That the companies have continued posting profits at all is
largely thanks to earnings abroad, but as foreign profits are
generally taxed where they are made, Spain's coffers have seen
less and less.
Spain receives a smaller proportion of corporate income than
personal income, with businesses paying 11.6 percent of total
group profits in Spanish taxes compared with 12.4 percent for
individuals, according to 2011 data from the Spanish Tax Agency.
Spanish companies' heightened search for foreign markets to
cushion a weak domestic business has come with an added bonus
for their bottom line in more favourable tax regimes.
In 2010, 30 of Spain's 35 blue chip companies had
subsidiaries in territories considered tax havens, according to
the latest report by Spain's Observation Group for Social
The organisation, which is partially subsidised by the
Labour Ministry, put the number at 18 before Spain's economic
"Not only tax reasons justify this trend, but also the
internationalisation of Spanish groups and the search for new
markets, especially in the context of the crisis seen in Spain,"
said Josep Serrano, Senior Manager of Transfer Pricing &
International Tax at Deloitte in Spain.
The use of subsidiaries in tax havens to reduce tax bills
has been a rising global trend in recent decades, tax
In Spain, companies also benefit from exemptions on
dividends from foreign subsidiaries, Deloitte's Serrano said.
Spain has a headline corporate tax rate of 30 percent,
broadly in line with other large European economies.
Switzerland, however, has a headline rate of 8.5 percent, and
lawyers say deductions can be made to reduce this further.
"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," a
global tax lawyer based in Spain said.
Inditex, the world's largest clothing retailer , with a
presence in 85 countries and two buying centres in Switzerland,
posted a 10.3 percent rise in pretax profit in 2011, but tax
paid on profits fell to 24 percent from 25 in the same period.
The falling effective tax rate contributed to an 11.7
percent rise in net profit.
Inditex, owned by Forbes-list billionaire Amancio Ortega,
denied it had a strategy of sheltering profit in tax havens but
said the nature of its business entailed paying taxes in the
countries where it generates its sales.
Among second-tier Spanish blue chips, global infrastructure
firm ACS, run by another Spanish billionaire, was
present in 11 territories considered tax havens by various
international authorities in 2011, up from eight in 2010.
Of the 11, seven are considered tax havens by Spain.
Part of the rise is because it bought a majority stake in
German builder Hochtief, which gave it access to new
markets through subsidiaries.
"We don't do anything other than our normal business
activity in these countries, and we comply with all tax laws in
all of the countries where we are present," ACS said.
REAL ESTATE HANGOVER
Spain's sharp fall in tax collection also reflects the
disappearance of hundreds of firms linked to the property and
construction sectors after the 2008 crash, including regional
savings banks that lent freely during a decade-long boom.
While the government wants to increase tax returns, it
doesn't want to limit companies' scope to invest and employ
more. Its 2013 budget unveiled last week focused on spending
cuts rather than new taxes.
Rajoy did eliminate some corporate tax breaks in 2012, a
policy he will continue in 2013, and has also brought forward
some tax payments, though that could be storing up problems.
"We might ask ourselves if the rise in prepayments in 2011
won't mean a fall in revenues for 2012," Spanish tax lawyer
Javier Galan said.
The Tax Agency said the tax base, excluding prepayments,
continued the "drastic decline" seen in the past three years.
So far the conservative government has said total tax
revenue would be higher than originally budgeted in 2012, partly
due to a hike in VAT.
Rajoy is also struggling to tackle a large black economy
estimated to account for 20 percent of gross domestic product.
A fiscal amnesty law has so far fallen pitifully short of
target, raising just 50 million euros of a 2.5 billion target.