Spain Suffers as Corporations Save on Taxes

Corporate tax levels down by almost two thirds as companies seek havens

A combination of small-business failures and the move of large corporations toward countries considered tax havens has led to a drop of nearly two-thirds in the corporate taxes collected by Spain, increasing the difficulties already faced by a nation on the verge of a bailout.

Reuters reported Wednesday that although Prime Minister Mariano Rajoy has been reluctant to target businesses in his drive to cut Spain’s deficit, its corporations have sought business elsewhere, including in many “tax haven” countries, boosting their own income but lowering the taxes they pay to their home country.

Mariano’s austerity measures totaling some 65 billion euros ($84 billion) have focused primarily on public-sector wage cuts and increased taxes on individuals rather than on business targets. However, some of its most successful corporations have gone abroad seeking profits and lower tax bills. The end result is that Spain is seeing lower revenues despite the corporations’ profitability.

The net profit of just five companies—the banks Santander and BBVA, telephone operator Telefonica, retailer Inditex and oil company Repsol—amounted to 17.8 billion euros in 2011. That’s more than the 16.6 billion euros taken in by the Spanish government through corporate taxes from a total of 1,400 Spanish businesses in the same year. In 2007, Spain collected 44.8 billion euros in corporate taxes.

"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 in the report. Cruzado is chairman of the Treasury Ministry trade union GESTHA.

According to the Spanish Tax Agency, the amount of corporate income it took in in 2011 was 11.4%, while individuals surrendered 12.6% of their income to the government.

The latest report issued by Spain’s Observation Group for Social Corporate Responsibility found that, while prior to the financial crisis, 18 of Spain’s 35 blue-chip companies had subsidiaries in territories considered tax havens, in 2010 that number had risen to 30.

Spain is still resisting resorting to a bailout. While earlier in the week it was reported that Madrid could seek aid as early as this weekend, late Tuesday Rajoy said it would not.

In the report he was quoted saying, "If a news agency reports that we'll ask for aid this weekend, there can only be two explanations; that the agency is right, and knows more than I do, which is possible, or that they are not right." He continued, "But, if it helps, and you accept that what I say is more important than this leak, I say no [we won't ask for aid this weekend.]"

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