Almost all economic statistics for the year 2020 suffer from a flaw: the distortion caused by the pandemic, which caused the biggest collapse in GDP since the Civil War. It also dealt a punch to corporate profits. They fell 26%, with the consolidated groups at the forefront, and corporate tax collection fell 33%. With these wickerwork, half of the 126 largest Spanish multinationals paid less than 15% of their global profit to the treasury, according to the latest Country by country report (Country by Country Report or CbC, in English) published this Wednesday by the Tax Agency.
These 70 companies, the ones that paid the least, earned 26,386 million globally and paid 3,019 million in corporate tax for it. What’s more: 31 groups supported an effective rate on their profits of less than 5%, with an average rate of 1.8%. This percentage is far from the legal rate of 25% set by Spanish regulations —30% for energy companies and banks— and also the minimum rate of 15% approved by the EU, which will replace land, also 15%, introduced by the Government in 2022 —in this case, on the tax base. These thirty multinationals, which account for more or less a quarter of the total group considered, concentrated 10% of the global profit, but only represents 0.7% of the tax paid.
The analysis published by the Tax Agency incorporates the information provided by the 126 groups with a Spanish parent company that invoice more than 750 million worldwide —in the previous edition there were 124— and their 14,854 subsidiaries, 9,948 of them abroad. These corporations earned 44% less in 2020 than the previous year, as a result of the huge losses and provisions that were noted with the outbreak of the health crisis, the confinements and the traffic jam in world trade. Only the companies of the Ibex 35, the main Spanish stock index, spent some earning 25,545 million to deflate their results to 8,296 million.
On the other hand, their contribution to the treasury was reduced to a lesser extent. They paid 12,502 million in corporate tax globally, compared to 14,969 in 2019. The result is an effective tax rate eight points higher than the previous year, and equivalent to 24.8% of their global earnings. An increase that is due both to poor corporate results and to the design of the statistics, which overestimates the losses and distorts the series, according to the same Tax Agency. “The existence of high losses due to the pandemic has significantly biased the effective rates upwards when calculated on net results”, details in the explanatory note that accompanies the statistics.
The organization began to disseminate this report four years ago, as a result of the commitments on fiscal transparency assumed with the OECD (Organization for Economic Cooperation and Development). The club of advanced economies also sets the rules for building the report, which draws on aggregate data and prevents knowing the name of the companies that provide the information, as well as breaking down the affiliate behavior by affiliate in each jurisdiction.
The report details that 53.6% of income, 39% of profits and more than half of the assets of the 126 multinationals are declared in Spain. In contrast, here they only pay 34.4% of the corporation tax that they pay globally. In addition, the average rate paid in Spain (21.8%) is almost three points lower than the average. It is also striking that the highest productivity per employee occurs in Ireland, Luxembourg, Malta and the Netherlands, territories known for their aggressive taxation, with levels that even triple local results.
Distortion
In the statistics published this Wednesday there are two results that stand out as atypical with respect to previous reports. On the one hand, profits fall much more than the amount paid to the treasury. The multinationals included in the report declared 50,471 million euros in profits, 43.7% less than in 2019; his taxation receded instead only 16.5%, from 14,969 to 12,502 million. On the other hand, the highest average rate supported, by more than 40 corporations, has exceeded 40%, a rate never seen before and well above the legal rate in Spain, of 25%.
A good part of these anomalies can be explained by the concept of business profit used by statistics. He Country by country report it is based on the profits, net of losses, of all subsidiaries of a group in the same jurisdiction. If, for example, a multinational based in Spain had two subsidiaries in Germany, one with 100 million profits and the other with 120 million losses, the statistics would not take their results into account because the balance is negative by 20 million. On the other hand, if in France a subsidiary earned 100 million and another lost 80, only a profit of 20 would be taken into account.
In conclusion, between the four subsidiaries in the jurisdictions, Germany and France, only 20 million net profits would be computed, instead of gross profits of 200 million. The other statistic classical of the Tax Agency on the business contribution to the treasury, the Consolidated Annual Corporate Tax Accountsinstead uses the group’s gross profit, which is taxed on positive results and is therefore not comparable to the Country by country report.
Likewise, the 43 companies that have paid an effective rate of 42.5% accumulate 68.6% of the total tax paid, an increase of 132% compared to 2019. “The benefit increases by 72.2% compared to the year 2019 which, together with the aforementioned increase in the tax paid, makes the average global effective rate 42.5%”, explains the Tax Agency. It must be clarified that no company pays a rate of 40%, but rather, by consolidating the profits with the losses of the subsidiaries, the profits fall and push the rate up, which is nothing more than the ratio between taxes and profits.
“The existence of such high effective rates (and the sharp increase of 8 points in 2020) is caused because in the CbC the result is declared as a balance between profits and losses by jurisdiction”, adds the Tax Agency. “The effective rates of the CbC are always overestimated, but the bias is even greater the greater the losses registered, without this distortion being able to be corrected”.
.Economy and Business in Facebook and Twitteror in our weekly newsletter
.
., ..
.
.
.
