Aggressive taxation in Malta, Ireland and the Netherlands dramatically increases productivity per worker | National and international economics

The most productive employees of Spanish companies work in their subsidiaries located in Malta, Ireland, the Netherlands and Luxembourg. This seemingly categorical statement is based not on concepts such as efficiency or effectiveness, but on purely fiscal and economic issues that make these aggressively taxed territories the most prosperous in the world in statistical terms. For example, the last Country report (Country report or CbC, the English abbreviation), published a few weeks ago by the Tax Agency. Spain’s 123 largest multinationals, with nearly 13,700 subsidiaries spread around the world, recorded total revenue of 902.7 billion euros in 2021, according to the data. Since each delegation had an average of 181 employees, productivity per employee was approximately €364,000. However, if in countries such as Spain, France, Italy or Germany this figure was about 450,000 euros per employee, then in the four tax havens of the European Union it ranged from 1.2 to 1.9 million euros per person, which is the highest indicator in the country. world.

Most Spanish multinationals use subsidiaries in these low-tax territories to improve the efficiency of their tax system. They typically have few employees since they are not manufacturing centers, but they move a lot of money. This explains the high productivity of subsidiaries located in these jurisdictions.

Several experts interviewed explain that behind this phenomenon is an ongoing process of redirecting profits to subsidiaries located in territories with more favorable taxation for companies. That is why the trend repeats itself from year to year. In 2019, before the outbreak of the pandemic, the average productivity per employee (always in the case of employees of Spanish multinationals) in Malta exceeded €2.3 million. In 2018 in Luxembourg it reached 6.1 million people, while the global average was €325,000.

He Country report These statistics are based on additional data that large Spanish groups with an annual turnover equal to or greater than 750 million euros are required to submit worldwide. The latest update, for 2021, highlights the impact of tax competition between jurisdictions and “the need to change international rules so that profits are taxed where they are generated, something the OECD is currently working on,” recalls Francisco de la Torre, State Treasury Comptroller.

The current procedure followed by multinational corporations is explained by the tax partner of one of the big four (the four largest consulting firms in the world, KPMG, PwC, EY and Deloitte), thrives by “redirecting profits and assets to subsidiaries located in these territories.” This is an “absolutely legal” practice, the expert recalls, which concentrates benefits in delegations that, in many cases, do not carry out any real activities. In other words, De la Torre adds, these are subsidiaries with very few employees. In 2021, although the average number of employees per delegation was 181, Malta recorded 13 employees. Luxembourg – only seven. This, coupled with the fact that per capita productivity is the result of total income divided by the number of workers, is rising rapidly. “Since each subsidiary has few employees, this ratio is very high. This indicates that profits and losses are being diverted from the rest of the world,” says De la Torre. “And not just Spanish multinationals. This is a global phenomenon.”

BEPS maneuvers (redirecting benefits to low-tax territories to pay less taxes), as Violeta Ruiz Almendral, professor of financial and tax law at the Carlos III University of Madrid, recalls, has been happening for many years in territories such as Luxembourg and the Netherlands. , among the others. So remember that OECD countries are working to implement pillars one and two with the goal of weakening or at least stopping this practice. The problem, he adds, is that it is sometimes difficult to determine whether these differences in productivity per worker are due solely to tax reasons or whether there are other aspects behind it, such as wider digital and technological developments. However, the tax consultant adds, the large differences between jurisdictions with aggressive flexibility and others indicate that much of the explanation is fiscal.

In the OECD’s latest corporate tax report, published at the end of 2023, the organization confirmed that productivity per worker tends to be higher where corporate tax rates are lower and in countries or regions that are poles of foreign investment. According to the OECD, these four European countries (as well as the Bahamas, Barbados, Bermuda, British Virgin Islands and Cayman Islands, among others) meet all these requirements.

He country by country, adds Ruiz Almendral, is mainly used to analyze long-term trends, since the statistics affect very few companies and any movement can trigger or reduce the magnitude. High productivity in these four territories has been a trend for many years. However, the profitability per employee (the proportion between revenue and profit before taxes) is not that great, which can increase or decrease for various reasons. In 2021, the global average was 9.3%, but while in Luxembourg it reached 49.7%, in the Netherlands it was -8.7%. In other years, it rose sharply in the Netherlands and Ireland, while it fell in Luxembourg or Malta. These indirect negative rates, De la Torre argues, are due to tax engineering and losses attributed to some subsidiaries located in low-tax territories.

Follow all the information Five days V Facebook, X And LinkedInor in our newsletter Five days program

Newsletters

Sign up to receive exclusive economic information and financial news that matter most to you.

Register!