Spanish Clothing Giant Drops Irish Unit Linked to Aggressive Tax Policy

; posted on
November 15th, 2018

Inditex, the company that operates Zara and several other clothing stores is closing an Irish subsidiary that has been criticized for its role in allowing the group to pay less tax elsewhere in Europe. The company made a request to be voluntarily taken off the register to Ireland’s Companies Registration Office.

The aggressive tax planning

In late 2016 the Greens/European Free Alliance (EFA) group in the European Parliament issued a report claiming that the company had saved at least €585 million in corporate taxes between 2011 and 2014 through the use of aggressive tax avoidance techniques. The coalition said the company primarily used entities in Ireland, the Netherlands, and Switzerland to lower the tax liabilities of its flagship Zara stores, as well as a host of related retail chains in other countries.

In Ireland, the report finds that the company uses Irish subsidiaries dedicated mostly to financial activities (intercompany loans and insurances) and an e-commerce subsidiary, registering huge profits, which are taxed at 12.5 percent, or 0 percent in the case of capital gains.

In the Netherlands, the company retail branches pay royalty fees to a Dutch subsidiary, where they are taxed at 15 percent. This Dutch subsidiary got € 3.7 billion in revenue in the 2011-2014 period and had a net income of €1.7 billion, with just 203 employees (as of 2014), according to the report.

The group has also used Switzerland to reduce its tax bill. One of its main trading firms is located in Fribourg, Switzerland, from where it buys low-cost manufactured clothes from producers in countries such as Bangladesh, Turkey or Morocco to sell back to other group companies.

Irish Operation

The subsidiary was established in 2006, and initially, all of the group’s e-commerce business was run out of this operation. By having subsidiary located in Ireland, the company saved €29.8 million in taxes in 2011-2014 (compared to if it were based in Spain).  The use of Irish subsidiary for tax purposes had been criticized as early as 2011, and since then the company has gradually been shifting its operations to Spain.

Before filing the request to strike off the subsidiary registration, on 7 November 2018 the company announced that the subsidiary, which previously centralized the online sales, was reducing its activity [in recent] years accordingly, and now will no longer be involved in online sales, having discontinued its activity. As such, local retail entities have integrated stores and online sales in each of the markets they operate.

Source: Yahoo Finance

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