Group3@Lille : Tax offshoring – How companies maximize their profits

The Finance ministers of the top 20 world industrialized countries, joined by member-States of the OECD, gathered on September 21th in Cairns, Australia, to claim their willingness to fight against tax evasion. Tax evasion consists in transferring money gained in certain places to another places which proceed less restrictive tax rate levels. Today the OECD counts between 30 and 40 tax havens around the world, hosting offshore financial accounts – both from individuals and companies.

In 2009, Saint-Gobain didn’t pay any tax on profits, and it’s unfortunately not the only firm in this case. Indeed in France, between 60 and 80 billion euros are estimated being hidden by big companies from national tax authorities. One can also observes that the top 50 European companies own on average 117 offshore societies in the so-called tax havens. This is legitimately considered as a huge loss of income for national governments as they are desperately looking for money to figure out their economic issues (reducing deficits, ensuring quality of public services, undertaking employment politics, etc…)

The giants of the Internet industry – Google, Facebook, Amazon,… – are especially taking advantage of the loopholes in the French law to pay minimum taxes on their profits. The chart below is a typical example of a complex mechanism frequently used by these firms in order to pay as less taxes as possible.

302724-121123-w-google-tax-1

Many industrialized countries feel unarmed facing this situation. As it is a globalized issue, countries have to cooperate to tackle it. Let’s take an example of a French consumer who decides to buy a book on Amazon.fr website. The consumer won’t pay the product to Amazon France, a subsidiary on which the French State could take off corporate taxes as the company is making profits in France. In fact money received from French sales goes directly to another subsidiary (in Ireland for instance) which allows Amazon not to pay high rate on its revenues. Indeed France has one of the most tax pressure systems in Europe with a maximum corporate tax rate about 36% whereas it’s around 12.5% only in Ireland.

taux-imposition-maximum-france-europe-573x352

These tax offshoring strategies are well-known from governments and international institutions for years, but it seems these authorities do not use the right tools and/or lack of political courage to overcome this challenge. It therefore worths to see if the States will adhere to the recommendations of the OECD by acting with real measures.

If you want to learn more about tax evasion, we strongly recommend you this documentary (in French):

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Other sources :

http://www.challenges.fr/ocde/20140917.CHA7789/comment-l-ocde-veut-obliger-google-airbnb-ou-facebook-a-payer-leurs-impots.html

http://www.challenges.fr/entreprise/20130618.CHA0925/5-astuces-des-multinationales-pour-ne-pas-payer-d-impots.html

http://www.challenges.fr/economie/20140921.CHA7975/le-g20-veut-lutter-plus-efficacement-contre-l-evasion-fiscale.html

http://www.lemonde.fr/culture/article/2013/09/10/evasion-fiscale-le-hold-up-du-siecle_3472607_3246.html

http://www.latribune.fr/opinions/tribunes/20130404trib000757615/entre-20-et-30.000-milliards-de-dollars-caches-dans-les-paradis-fiscaux.html

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