ExxonMobil uses Spain as a tax shelter, pays zero

The one and only employee of ExxonMobil Spain would certainly be in favor of Chancellor Angela Merkel's proposal to link wages to profits. In two years, the company, an affiliate of the oil giant ExxonMobil, recorded 9.907 billion euros in net profits. For practical purposes, the money is really net surplus; the company did not pay a single euro of taxes on the gains. Like many other multinationals, Exxon has found its own private tax haven in Spain.

Exxon is utilizing a completely legal tax structure known as entities holding foreign securities (ETVE). Using this structure can be called financial engineering or tax planning but not fraud, unless proven otherwise.

ExxonMobil is the world's largest company in stock value and the first in turnover, with 2009 revenues of $3.832 billion. In Spain and Portugal it used to operate under its Esso brand with a network of 130 gas stations, which were sold to Portugal's Galp in 2008. But Exxon also has another company in Spain: one that is far more discreet and out of the spotlight; one that moves billions of euros a year.

Exxon is one of many multinationals that were attracted by Spain's creation, in the mid-1990s, of a holding company system with a privileged tax liability. The justification for this type of company is to avoid international double taxation. In other words, the profits generated by a company's affiliate in one country are not taxed twice: once in the affiliate's country and again in the parent company's country.

But business and tax advisors have found ways to use the loopholes offered by the system - both in tax havens and respectable jurisdictions - to achieve the opposite: taxes are not paid in either country.

During 2009, ExxonMobil Luxembourg paid ExxonMobil Spain a dividend of 3.650 billion euros. Under the so-called parent-subsidiary directive, "such income was not subject to foreign withholding tax" and in Spain was "tax-exempt due to the ETVE system."

In turn, ExxonMobil Spain paid its parent company in the US dividends of 2.265 billion euros, which was also tax-exempt due to the ETVE structure. In addition, the holding companies paid 1.384 billion euros in premium issue to its US parent, also exempt. The money went from Luxembourg to the US without any taxes accruing, thanks to its trip to Spain.

But this is not unheard of. Google uses tax structures in the Netherlands, Ireland and tax havens to pay only 2.4 percent on its profits outside the United States, according to Bloomberg, which confirms that Facebook is setting up a similar structure.

The Spanish system is very advantageous yet also well-regarded due to certain inbuilt safeguards. Yet these safeguards do not prevent tax engineering maneuvers. Practices such as sub-holding and capitalization have made the structure a focus of increased risk of fraud, according to the country's Tax Office.

In Spain, multinationals such as Vodafone, Hewlett Packard, American Express, General Mills and Eli Lilly have used ETVEs to channel their interests in foreign companies. Some of these have only one employee. The lone worker at ExxonMobil Spain earned 44,000 euros in 2009. A pittance, given that his company brought in 5.333 billion euros.