BASF and Malta company lambasted by European Greens for aggressive tax avoidance
‘Toxic Tax Deals’ says German chemicals giant BASF uses Malta to minimise tax on its profits as part of aggressive tax minimising strategy across Belgium, the Netherlands, and Switzerland
7 November 2016, 5:01pm
“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,” the report, Toxic Tax Deals, states.
BASF registered a “German” company in Malta – BASF Finance Malta GmbH – which is estimated to own over €5 billion in assets, according to a 2006 filing with the United States Securities and Exchange Commission.
The company is eligible for Malta’s preferential tax regime, which means profits will be taxed at 35%, but are then eligible up to 85% in refunds when the net profits are paid out to foreign shareholders.
“BASF Finance Malta GmbH’s assets consist entirely of loans to undisclosed BASF Group companies. This implies that the company’s income consists of tax-deductible interest payments from BASF subsidiaries, which could facilitate profit shifting from higher-tax jurisdictions,” the report stated.
The report did not estimate how much tax BASF Finance Malta GmbH avoided because it only had abbreviated balance sheets at hand.
“It is possible the subsidiary was established to finance one, or both, of the major acquisitions BASF completed in early 2006: Degussa Construction Chemicals (for €2.7 billion) and Engelhard Metals (for US$ 5.1 billion). One of the company’s two managing directors is an accountant and business executive, who worked for Degussa prior to joining BASF Finance Malta. The other managing director is Guido Hennissen, whose LinkedIn profile identifies him as a BASF tax manager and a director of BASF Antwerpen NV in Belgium.”
BASF a critic of tax transparency
German Green MEP Sven Giegold, a member of the Panama Papers, accused BASF of having repeatedly opposed more transparency on tax systems, including in the German Bundestag. “Now we know the reason for its opposition: opaque tax systems favour tax dodging worth millions of euros.”
Giegold said German companies were dodging taxes like multinationals elsewhere to avoid millions of euros in tax liabilities. “After IKEA this case shows: tax dumping in the EU are not isolated occurrences. For years, BASF has hidden millions of euros from tax authorities.”
"Tax dumping in the EU are not isolated occurrences. For years, BASF has hidden millions of euros from tax authorities"
BASF has been a vocal opponent of OECD and European Commission efforts to combat profit shifting and tax avoidance.
“In particular, the company has formally opposed reforms that would require greater public transparency by multinationals. BASF opposed the European Commission’s proposal to mandate public disclosure of the Country-by-Country Reports of key tax-related facts. The company testified in 2016 in the German Bundestag against requiring public disclosure, claiming that such information would not be useful to the general public,” the report stated.
“And BASF has also opposed efforts to require that secret tax rulings and advance pricing agreements concluded between individual member states and multinationals be exchanged multilaterally with other national tax administrations.”
Malta is fending off pressure from the European Commission after Brussels rebooted a common corporate tax proposal. Only last week in parliament, Nationalist MP Mario de Marco called for bipartisan cooperation against attempts that could harm Malta’s sovereignty on its preferential tax regime for foreign, tax-resident companies.
On their part, the Greens are leading efforts to pressure the EU into launching harmonised tax measures, something the Maltese government vehemently opposes together with countries Cyprus and the United Kingdom.
“The German resistance against international tax transparency is an unmerited gift to tax dumping in the style of BASF,” Giegold said of his home country. “To tackle tax avoidance and tax dumping, we need a harmonization of the company taxation within the European Union. The race to the bottom can only be stopped by minimum tax rates and the harmonisation of tax bases.”
The report estimates that BASF used various tax planning strategies to avoid €923 million in tax over the five-year period from 2010 to 2014.
In the Netherlands, BASF created holding companies which receive dividends from subsidiaries across the world and are 100% exempted in the Netherlands. Using a hybrid loan between the Netherlands and Belgium, where interest is deducted, the dividends in the Netherlands become 100% exempt.
In Belgium, BASF has used the excess profit rulings scheme, which the Commission declared illegal state aid in January 2016. BASF estimates it will have to pay €46 million back to Belgium. It also saved €202 million by deducting “fictional” expenditures, the report states.
In Malta, BASF’s subsidiary qualifies for a preferential tax regime where dividends paid to the foreign parent company obtain a six-sevenths’ refund on the tax paid in Malta.
In Switzerland, BASF Agro BV – a Dutch trading and intellectual property company – pays an effective tax rate of 6.1%. “There is evidence that BASF transfers intellectual property to BASF Agro BV, based in Switzerland, specifically for tax planning purposes.”
Matthew Vella is executive editor at MaltaToday.
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