By Wolf Richter, San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.
“Foreign Investment Paradox” is what the New York Times called France’s ability to attract €42.5 billion in foreign investment through October this year. Only China and the US were ahead for the first two quarters. A paradox because it shouldn’t happen. Investors should be scared off by restrictive labor laws, high income-tax rates, high cost of labor, and now the mud-wrestling bouts over nationalizing some industrial plants [Nationalizations Take Off In France]. But turns out, astute multinational corporations pay practically no income tax.
As if to underline the harsh reality in France, the article ran the same day that Texas Instruments announced its intention to shutter a research and development plant at Villeneuve-Loubet, near Nice, in southern France, as part of its corporate weight-loss program. Of the 541 employees, 517 would be axed. The remainder would be transferred. It would leave TI with fewer than 100 employees in France. But companies, like TI, that are packing up their marbles are not subtracted from the foreign investment total.
Yet France can be a veritable gold mine: it offers tax credits of 30% of R&D expenditures of up to €100 million. For the first two years, these credits are even higher. A huge benefit for small companies. “You can recoup a lot of your R&D expenses,” said Gene Bajorinas, Vice President of Novian Health, a biotech outfit from Chicago. “It’s an ideal scenario.”
As for large companies, the article cites other benefits—an educated workforce, infrastructure, and so on—to explain why Google located its headquarters for southern Europe in Paris, why Amazon is building a second distribution center, and why 171 foreign companies set up manufacturing plants in 2011, way ahead of Germany and the UK. A phenomenon Ernst and Young partner Marc Lhermitte called “paradoxical.”
And it’s not a paradox. Last year, when French authorities raided Groupe Partouche, which owns hotels, casinos, restaurants, hot springs, and online gambling operations, they stumbled upon invoices from Microsoft and Google for ads and promotions. The invoices hadn’t been issued by the subsidiaries in France that had done the work, but by subsidiaries in Ireland. This led police and tax authorities to raid local Google offices in June 2011 and Microsoft offices in June 2012. Facebook offices were raided during the peak of summer.
Then, November 1, tax authorities raided Google offices at four locations in Paris and seized files. They apparently suspected Google of selling online ads to French companies without declaring revenues from those transactions in France—but in Ireland, where it declares its European profits. Google claims that its work in France is nothing but low-level “marketing assistance and service support.” While generating over €1.25 billion in revenues in France in 2011, it paid only about €5 million in corporate taxes there.
“I am very proud of the structure that we set up,” explained Google Chairman Eric Schmidt last week as it became known that Google might be liable for €1.7 billion in back taxes and penalties in France. “We did it based on the incentives that the governments offered us to operate,” he added. “It’s called capitalism. We are proudly capitalistic. I’m not confused about this.”
They hadn’t been the first ones. Yahoo and Amazon had already been hit, as had eBay. But on December 7, eBay’s office in Paris was raided with a very public display of force. Police cars pulled up, officers rushed inside, others blocked the entrances. The problem: in 2011, eBay and its subsidiary PayPal had declared only about €22 million in revenues and paid €1.35 million in corporate income taxes to the French government, compared to €1.18 billion in revenues that they declared in Germany.
Multinationals have always been able to slither through tax codes around the world—the ability of GE and Boeing, for example, to not pay income taxes in the US despite their immense profits has become legendary (CTJ report). So corporate giants, such as Google and eBay, have perfected their methods for France. Among other strategies, they rely on subsidiaries in Ireland, the Netherlands, and then offshore tax havens to shift revenues and income away from France.
Amazon’s subsidiary in France, for example, receives only a small commission off each sale. The rest of the revenue is routed overseas. Not illegal, per se. And proving that French law has been violated appears to be tricky. Companies are not expected to roll over. The fight in the French judicial system might be long and ineffectual. Meanwhile, France remains, contradictory as this may seem, a low-tax jurisdiction for foreign multinationals.
The crackdown has taken on hues of a populist and administrative revolt against these corporate welfare programs that multinational companies—but not local ones—have access to. Tempers are flaring as belts are being tightened around retirees, workers, and the unemployed until they’re gasping for air. Flamboyant threats of nationalizations and demands for protectionism were seen as a cure. But suddenly, they have run into a buzz saw. Read…. The Socialist Heart Of France Leaves Its First Victim.
18 comments
Comments are closed.
http://www.rmi.org/RFGraph-Energy_consumption_in_US_economy
Please click through this site for more real world policy initiatives, consistent with the market analysts regularly seen on NC.
The above link from The Rocky Mountain Institute, Amory Lovins group, concurs with W. Richter’s conclusion that natgas can be a bridge from liquids and coal to an electric future. Energy should be produced to conform to the overall policy goal of electricity production and distribution, especially in dense population areas of cities e.g Boston-Richmond corridor. Removal of particulate air pollution from burning fossil fuels will impact health care costs as an unintended consequence of no small dollars.
Natgas, along with efficient low energy load designed architecture, and widespread solar electric installation will spare oil and coal for the critical industrial usages of manufacturing, not as a waste product to be burnt and pollute the atmosphere. Oh yea, all of the climate disaster stuff too. Cost benefit conclusion, mega, mega beau coup bucks return on investment. Charts and graphs to follow.
oooppps!! Boy did I ever have senior moment! This was supposed to go onto the previous post about Chris Martenson. I need to stop baking Christmas cookies and get some sleep or knock off all of the obsessive compulsive news cycle consumption.
I read yesterday somewhere that Google (Don’t be Evil) has billions in tax havens so they don’t have to pay US tax.
We have the most magnificent “civilization” the global inherited rich can cram down the publics’ throat while they fleece us with no recourse…..rule of law is for the little people.
I can only hope that the 99% around the world are waking up to how the global inherited rich are taking us all over the social cliff by playing us off against each other.
Google’s International Arbitrage Orgy, every which way. Corporate Tax Arbitrage should be snuffed.
Don’t know about France, but the US Internal Revenue Code was 10,000 pages long in 1977 when I studied it long enough to earn an LLM in taxation. The rate schedules consume 1 page. All remaining pages are loopholes for the corporate and inheritor rich (well, yes, and entertainers, stock traders and other spoiled poodles), and of course for corporations, especially multinationals, each of which employs an army of specialists to divert income to low tax and no tax jurisdictions. An acquaintance claims to have saved her megabank $1 billion in income taxes just last year! She spends most of her time schmoozing regulators in off shore island tax haven paradises. Leona Helmsley told us thirty-five years ago (after being surprised by allegations of tax evasion) that taxes are for little people. She wasn’t kiddin’.
The French may go into Google with sirens blazing, but they will ultimately slink away with tails between the legs. Tax law enforcement against corporations is just opera. The more one knows about this stuff the worse it actually is.
When I was in northwest rural France in August a new tax law was coming on the books in France whereby British “holiday homes” were to be taxed as investment properties.
There was a big hue and cry from Brits but the French were shedding no tears.
ALL “homes” beyond ONE official, legal residence should be taxed to the max.
Will Jean-Luc Melenchon lead the way out of “finance feudalism?” (Hudson)
Let’s turn the page of the *book of life*.
——————
Lambert, VERY long wait for the ad cycle to turn now, finishing with the corner banner for Occupy. Which ad is causing the delay in particular?
Are you representing BofA or Goldman?……grin
Gawd loves a straight up shill.
picture please!
DB, Yeah, where’s the “before/after” gloss on the pitch?
The main problem with France is its bloated public sector. Civil servants for life in France enter the service after school or university and never ever set foot in a company or plant for their whole life. And they think they know better than anybody else what is to be done and how to run an economy. Add to this a global socialist/communist brain washing for the last 50 years and you have the people the most ignorant of economy in the world.
The same people that want to give lessons to the outside world. Laughable!
Is a “Muller” going to praise the French educational system put into place by Napoleon Bonaparte, but de-railed by “Neocon” Saturnalian Brotherhood beginning formally in C.21 by Leo Strauss at Britshil Rockefeller’s University of Chicago, implemented by Friedman-Kissinger for The Shock Doctrine of Disaster Capitalist Profiteering by the enemies of La Belle France?
RATP group ( once just the Paris metro)
Is now getting revenue from far off places such as Cassablanca
The choice seems to be either pay a oil rent or pay guys to prevent you paying a oil rent…..
Not sure which is best now.
http://www.youtube.com/watch?v=OmGLpzki8Pc
These companies violated the law and they called in the cops— police cars and everything? Boggles the mind.
This I’d almost like to see more than the inhabitants of planet e.
pass through….
It seems that France wants to do what China is doing to preserve their industry or they could be just like failure to launch India. Gotta love India’s capitalist solutions thats why they built a space station, can send people into space and make solar cells and make micro chips….. oops. I forgot that thats China that can do that stuff.
White House petition to end corporate welfare here: http://wh.gov/Qa6f