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BUSINESS

Technology giants, taxpaying dwarfs

Apple, Microsoft, Google, Facebook, Yahoo, eBay and Amazon all see billions in revenue in Spain But these companies have paid just 25 million in taxes over the past three years

Jesús Sérvulo González
Google is among the big firms paying little tax in Spain.
Google is among the big firms paying little tax in Spain.JOHANNES EISELE (AFP)

Size does matter - at least when it comes to paying taxes. The Spanish subsidiaries of the world's biggest technology companies work to bring their tax bills down to the minimum possible, using "aggressive fiscal planning" - something the Tax Agency in Spain refers to as fiscal engineering in order to avoid paying taxes.

The Spanish units of Yahoo, Apple, Google, Facebook, Microsoft, eBay and Amazon paid just 25 million euros between them on their earnings over the past three years, despite generating billions of euros in sales on their goods and services. They managed to do so by transferring most of their turnover to subsidiaries in other countries with lower corporate taxes, such as Ireland, Luxembourg and Switzerland.

In order to address this problem, the Tax Agency last week set up a special unit to strengthen its monitoring of the tax situation of multinationals with subsidiaries in Spain. The unit will have 50 tax inspectors, but details of how exactly it plans to tackle tax abuses by companies such as these have not been made known.

Two weeks ago, the Spanish secretary of state for finance, Miguel Ferre, took part in a meeting of the Organisation for Economic Co-operation and Development's Committee on Fiscal Affairs in Paris on the erosion of corporate tax bases as a result of companies transferring their profits to countries with more favorable tax regimes. The idea of the world's main multilateral agencies is that companies should pay taxes where their revenues are generated.

The corporate tax system in Spain is more generous in terms of the costs that companies can claim against taxes, while other countries have lower tax rates. This allows companies to create a structure whereby they transfer revenues to countries with lower tax rates, while loading costs on Spanish subsidiaries to obtain bigger deductions.

Here are a few of the techniques used by the big technology multinationals in Spain to reduce their tax bills.

APPLE: Ireland as a middleman

This is one of the most paradigmatic cases of the practice of reducing a corporate tax bill. Apple has a number of units in Spain for the sale of its tablets, telephones and computers. The group has created a business structure for transferring earnings in Spain to a subsidiary in Ireland, where most of its sales are billed. The company has its own network of outlets and also sells to third parties, mostly large stores.

Apple Retail is the company that handles Apple sales in Spain. The company posted sales of 76.3 million euros last year, up 14 times from a year earlier, according to the Registry of Commerce. Apple Retail buys from the Irish subsidiary at a very tight margin, which reduces the profit it makes in Spain. Despite the jump in sales last year, Apple Retail made a pretax profit of only 364,138 euros, 0.4 percent of its turnover. That was because the majority of its costs, of 60.5 million euros, came from the purchases it made with Apple Sales International in Ireland. The corporate tax rate in Ireland is 12.5 percent, compared with 35 percent in Spain. The arrangement means that Apple Retail paid only 143,115 euros in taxes last year despite having turnover of 76 million.

GOOGLE: The Tax Agency is on its trail

The Spanish subsidiary of the internet search giant took in millions of euros of advertising revenue in Spain last year but declared sales of only 38.3 million euros, of which 36.9 million came from Google's Irish unit. The Spanish unit charges Google Ireland and Google Inc. for the costs it incurs in providing services to them plus a margin of between 8 and 10 percent. In turn, most of the profits Google made in Ireland were transferred to tax havens. Google Spain has declared losses in the past two years, which has prompted an investigation by the Tax Agency.

MICROSOFT: Consolidation

The Spanish unit of the US software giant, Microsoft Ibérica, acts mainly as a middleman for sales made by Microsoft Ireland Operations Ltd in Spain. Of total revenues of 157.6 million euros last year, Microsoft Ibérica billed the Irish subsidiary for 125 million. That meant that Microsoft's sales in Spain were in the area of hundreds of millions of euros. Despite that, Microsoft Ibérica posted a profit of only 15 million euros in 2011, on which it should have paid taxes of 6.1 million. However, Microsoft Ibérica's accounts are consolidated with those of España Microsoft International Holdings Spain, which is due a tax refund of 28 million euros. The Tax Agency has also opened a probe into Microsoft Ibérica for the years 2004-2005 and is seeking 11.9 million euros.

FACEBOOK: Bills only in Ireland

The Spanish unit of the social networking website controlled by Mark Zuckerburg declared sales in Spain last year of 1.7 million euros, up 60 percent on a year earlier, for internet advertising and marketing services. All of this revenue comes from Facebook Ireland Ltd, which is the recipient of the bulk of the revenues that Facebook really generates in Spain, where in turn most of the costs are booked. Facebook Spain paid only 39,740 euros in taxes last year.

YAHOO: The Swiss connection

The internet multinational's Spanish unit booked sales last year of 17.1 million euros, up 9 percent from a year earlier. A Dutch company forms part of the shareholder structure of Yahoo Spain, which makes all of its sales to companies with the group, mainly to Yahoo! Sarl, which is headquartered in Switzerland. It acts as an agent for the Swiss company and receives a percentage of its sales. The Spanish unit has paid practically no tax at all since it was set up, having built up tax credits on years during which it made losses.

AMAZON: Corporate services

Amazon España was set up toward the end of last year when it had sales of 314,417 euros, a fraction of the millions of euros taken in by the giant online retailer. The company's mandate is to provide corporate support services, fundamentally to companies within the group. The Spanish unit opened its first logistics site in Spain in May. Most of its operations are carried out through Amazon EU Sarl in Luxembourg. Amazon bought Spanish firm BuyVip, which posted a loss last year of 14.3 million euros despite booking revenues of 60.9 million.

eBAY: Offsetting profits

The operations of the Spanish unit of the online retailer are confined within the group, which includes online payment site Paypal Spain and other international units, from which it made sales of 443,109 euros in 2011. The multinational transfers the revenues from sales in Spain to other units within the group headquartered in other countries. eBay International is based in Switzerland. The company has largely avoided paying taxes in Spain as a result of offsetting profits against losses in previous years. Between 2009 and 2010, it paid 9,500 euros in taxes.

These fiscal engineering practices employed by technology multinationals between units of the same group to avoid paying taxes are not illegal. However, other large technology companies with a presence in Spain, such as IBM, do not avail themselves of these loopholes. IBM Spain was established in 1941 and last year paid 30 million euros in taxes, more than the rest of the combined multinationals examined in this article paid over the past three years.

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