German chemicals manufacturer BASF is being accused by the by the European Greens of avoiding almost €1 billion of tax.
In a report published by the Greens, the company is accused of using complex tax-planning strategies in Belgium, the Netherlands, Belgium, Switzerland and Malta to reduce its tax obligations.
While tech companies like Google and Apple may steal the headlines by engineering spectacularly low effective tax rates for major European subsidiaries, this report presents evidence that industrial companies like BASF may also go to great lengths to shift profits and avoid taxes, even if the results are not as apparent.
Key findings concerning the tax planning strategies used by BASF are summarized below. Unless otherwise noted, the estimates for tax avoided are for the five-year period from FY2010 through FY2014. The report presents evidence that BASF:
Used a network of Dutch holding companies to avoid German income tax on foreign-source dividends.
Estimated tax avoided: €73.3 million
Exploited the Netherlands’ overly generous participation exemption to avoid tax on income generated by an intra- Group “hybrid loan.”
Estimated tax avoided, 2013-2015: €177.9 million
Exploited the Dutch “Innovation Box” to obtain a preferential 5% tax rate on an undisclosed amount of intellectual property income.
Estimated tax avoided: Unknown
Exploited Dutch rules which allow deductions for unrealized capital losses to avoid tax on income derived largely from sales to related companies in the Netherlands and Germany.
Estimated tax avoided: €72.1 million Used intra-group trading activities to:
Shift profits to Dutch subsidiaries with low-tax branches in Puerto Rico and Switzerland.
Estimated tax avoided: €375.6 million
Avoid French income tax.
Estimated tax avoided: €37.7 million
Shift profits to a low-tax Swiss subsidiary.
Estimated tax avoided: €46.9 million
Used Belgium’s notional interest deduction to avoid tax on earnings derived largely from transactions with BASF subsidiaries around the world.
Estimated tax avoided: €202.0 million
Used Belgium’s excess profits deduction to avoid tax from 2005 to 2014.
Estimated tax avoided: €46 million
Used a €5 billion Maltese finance company that likely qualifies for a 6/7 tax refund applicable to subsidiaries with predominantly foreign income.
Estimated tax avoided: Unknown
The fundamental lesson that emerges from this research is that fulfilling the European Commission’s goal of ensuring that multinationals pay tax where they generate value and profits will require a radical overhaul of the principles and mechanisms which govern the international tax system.
“BASF has been an increasingly outspoken critic of proposals to reform the international tax system,” the report by the European Green Movement and the European Free Alliance – which between them have seven members of the European Parliament – says, adding that the German industrial giant has opposed public country-by-country reporting, the mandatory disclosure of secret tax rulings and tighter rules on profit-shifting via intellectual property.
BASF is the largest chemicals company in the world, the report notes, with annual sales of €70.4 billion and 112,000 employees in more than 80 countries working for in excess of 570 different businesses.
The report calls for a common consolidated corporate tax base and a minimum corporate income tax rate – both of which are opposed by Ireland– and mandatory country-by-country reporting of key financial data.
“Without these changes, the multinationals and their tax consultants, together with states which choose to engage in destructive tax competition, will continue to get around efforts to clamp down on profit-shifting and tax avoidance,” writes author Marc Auerbach.
He said the report was not designed to “shame” BASF but to “illustrate the mismatches and gaps in European and national tax laws which practically guarantee that multinationals will adopt aggressive tax-avoidance strategies”.