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Zara Caught in Tax Dodge Claims

In a recent report, the Greens and EFA Group have accused Inditex of shopping around for the best (read: cheapest) places to pay taxes.

Zara’s parent company is the latest corporation to be singled out. Just as production has played leap frog all over the world, hoping to land on the most cost-effective place to manufacture, it’s also in vogue to price shop tax laws.

The Party cites Inditex with a “why pay more?” attitude after noting the firm has located its most profitable businesses in countries with low tax rates. The report claims Inditex has:

  • Shifted royalties to a Dutch subsidiary that was taxed at only 15 percent, depriving Spain of 218 million euros and more than 220 million euros from Germany, Italy, France, Greece, the U.K., Belgium and Austria combined from 2011-2014
  • Set up subsidiaries in Ireland to enjoy taxes as low as 12.5%
  • Established a trading firm in Switzerland, which buys goods from makers around the world and sells it back to its other companies, that paid no more than 7.8% in taxes on 1.4 billion euros ($1.5 billion) in 2014

For its part, Inditex has offered assurances that all of its practices are above board. “Operations between companies of the group are audited regularly by the tax authorities,” Inditex said in an e-mail to Bloomberg, adding that it acts with “maximum fiscal responsibility.”

A pervasive problem

The Spanish retail group is just the latest firm the Greens have designs on. Lawmakers in Europe are currently looking into claims by the same group that Swedish furniture maker IKEA dodged at least 1 billion euros ($1.06 billion) in taxes over a six-year span. In response, IKEA has stated the company’s tax procedures are legal.

Similar investigations have reverberations at home as well. In August, the EU found that Apple Inc. received illegal tax breaks for its European business, resulting in a bill for $14.5 billion. The EU claimed the corporation funneled profits to two empty head offices in Ireland. The Greens are said to be looking into the legality of tax deals for American companies like Amazon and Starbucks.

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In fact, the party says instances of possible tax avoidance are so rampant, it’s time for new legislation. Of the proposed new measures, the Greens suggest a minimum corporate income tax rate throughout the European Union.

The outlook at home

It’s disconcerting for everyday people to feel that corporations are getting away without paying their fair share, even as many of them struggle to get by. And this was a rallying cry of U.S. President-elect Donald Trump throughout his campaign. An interesting stance, given that during the run up to the election he seemed to imply that he was “smart” for avoiding federal taxes related to his business concerns.

The debate over corporate taxes—what’s fair, what’s legal and what shouldn’t be legal—is likely to continue to grab headlines when the new administration takes over. Many see Trump’s cabinet appointees like Steven Mnuchin, a former Goldman Sachs executive, to Treasury Secretary, as early indicators that he stands with big business. This as his campaign promises to look out for the little guy still reverberate in our ears.

One step Trump has taken on behalf of workers was to (at least partially) fulfill a promise to save jobs at Carrier. The deal, which saved hundreds of jobs from moving to Mexico, came at a price to tax payers though given that the air conditioning company’s parent, United Technologies, will receive $7 million in tax credits from Indiana as a result.