Zara


PARIS — Inditex SA, the world’s biggest clothing retailer and owner of Zara, was called out by the European Green Party for using what it claimed were “aggressive” tax avoidance schemes to reduce taxes by 585 million euros, or $624 million, between 2011 and 2014.

Inditex has used a complex web of licensing fees and intercompany loans to shift profits to zones such as Ireland and the Netherlands, where corporate taxes are lower, the Greens alleged in a report published Thursday.

Inditex has rejected the deputies’ claims, saying the report “is based on erroneous premises that lead it to mistaken conclusions.” The company said it complies with tax legislation in all the markets in which it operates.

Green deputies in the European Parliament are calling for an overhaul of the EU’s corporate tax system in order to crack down on tax avoidance by companies such as Inditex and make sure taxes are allocated to countries where value is created.

“This is not about blaming a specific company,” said Sven Giegold, a Euro-deputy from the German Green party. “We just want to show how tax dumping works in Europe.”

The decision to examine Inditex’s structure was not based on any ecological or ideological issues concerning the Spanish retailer, Giegold told WWD, but simply the fact that the Green deputies claimed to have found in an initial survey that the retailer’s tax strategies were particularly aggressive when compared to other companies.

The Spanish retail group used internal transactions including the licensing of industrial property rights to move profits from its retail branches — reducing margins to a range from negative figures to 5 percent during the period — and concentrating them in non-retail subsidiaries that posted net profits between 20 percent and 70 percent, the report claims.

For example, one Swiss subsidiary that was used to import clothing from outside the EU passed the merchandise on to Inditex brands like Massimo Dutti at a significant mark-up — thereby shifting profits to a zone where they were taxed at only 7.8 percent.

The report alleges that Irish subsidiaries — which pay 12.5 percent in income tax and 0 percent on capital gains — were able to absorb much of the group’s profits using internal loans and insurance agreements.

Inditex retail chains throughout Europe also allegedly paid royalty fees of 3.7 billion euros, or $3.95 billion at current exchange, to a Dutch subsidiary from 2011 to 2014. The report claims those royalties cost 218 million euros in missed tax revenues for Spain alone during the period in question, and as much as 76 million euros for France.

European Green deputies have said the current tax system not only reduces tax revenues overall but divides them unfairly among countries. They are calling for the implementation of a European minimum corporate tax, as well as a common set of rules to determine how multinationals should allocate taxes across borders.

The current tax system creates unfair competition for local and small businesses, according to Giegold, as multinationals are able to lower prices with the savings from tax avoidance schemes.

“We need a common rule for taxes that considers where you employ people, where you have significant capital investments, and where you actually sell your product,” Giegold said.

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