Some people may think that tax dodging is the domain of large US multinationals, particularly the tech giants, like Google, Apple, Facebook, Netflix and Amazon. A new report by the Sydney-based Centre for International Corporate Tax Accountability & Research (CICTAR) provides a clear example of a German multinational, Fresenius, using the same tricks. The Tax Justice Network’s Jason Ward reports.
Fresenius, is not a household name but it is one of Germany’s largest multinationals and the largest dialysis company in Australia and the world. Fresenius makes big profits in Australia, as in the rest of the world, from government funding for healthcare services, supplies and equipment. Fresenius, through various divisions, does it all and continues to expand in Australia and globally.
Dialysis is a dirty but growing business and is essential to keep people alive who have kidney failure and can’t get a transplant. Dialysis machines substitute the function of the kidney by cleaning the patient’s blood externally and pumping it back in. Sadly, the conditions that cause kidney failure – like diabetes and obesity – are concentrated in disadvantaged communities. As more people need treatment, the private operators of healthcare, like Fresenius, make fatter and fatter profits. Fresenius is now exposed as a tax dodger but has recently paid the US government hundreds of millions of dollars under the US Foreign Corrupt Practices Act to settle charges for a decade of global bribery and corruption to win lucrative government contracts.
Like other multinationals, despite high global profit margins, profits in Australia and other countries vanish through a myriad of offshore related party transactions. As a result, Fresenius has paid very little tax in Australia and frequently reported losses despite continuing to expand. The report details how Fresenius syphons the profits away in Australia and suggests that Australia may provide a window into global practices. Remarkably, the company appears to be doing the same in its home country of Germany as well. While the company pays a high rate of tax on reported profits in Germany, the profits don’t match sales and employees. Are German workers that much less productive than their global peers?
The report was launched in Germany in conjunction with the Tax Justice Network in Germany and European and global public sector union federations (EPSU & PSI). Jason Ward, the author of the report and CICTAR’s Principal Analyst, said
“We hope this report will change the widespread belief in Germany that German companies don’t dodge taxes, they do. Also, Germany has been blocking progress in Europe on measures to increase tax transparency and the German government needs to change its approach and be a positive influence on European and global tax reform discussions. All governments, including Australia’s, need to require a higher level of transparency for any company receiving government contracts. It is not OK to keep giving contracts to tax dodging multinationals. We are calling on Fresenius to immediately shut down tax haven subsidiaries and implement a new voluntary tax transparency reporting standard established by the Global Reporting Initiative (GRI).”
Fresenius’s Big Pharma peers are notorious global tax dodgers and have also captured the attention of the ATO. Fresenius may have avoided up to $4.7 billion in taxes worldwide through aggressive tax planning over the last decade. At the same time, the German healthcare giant holds nearly $13 billion in untaxed profits in offshore accounts. Fresenius is represented in almost every well-known tax haven around the world, including the Cayman Islands and the British Virgin Islands, Hong Kong, Delaware and Singapore. Taking it to a new level, Fresenius establish Panama “branches” of two German subsidiaries that play a central role in the multinational’s global operations. The company uses its network of tax havens to shift profits and avoid higher corporate taxes in Australia, Germany, India and other countries. As one example, using intra-group loans in 2017 two Irish subsidiaries – with no employees – made a profit of $76 million by granting loans to group companies in Spain and the United States.
“This case study demonstrates that profit shifting and transfer pricing are not just the domain of US tech giants, but pervasively used by most multinationals, including large German multinationals like Fresenius,” says Gabriel Zucman, Professor of Economics at the University of Berkeley and member of the Independent Commission on the Reform of International Corporate Taxation (ICRICT). And Germany in particular is among those who are suffering: “My research shows that Germany may lose more than any other EU country from transfer pricing to European tax havens.”
Rosa Pavanelli, General Secretary of Public Services International (PSI), calls on governments to shut down tax loopholes and change the outdated global tax system so that essential public services, like health care, are adequately funded. “Fresenius needs to clean up its act”, she said.
“I am not surprised that this company is engaged in aggressive tax avoidance given the violation of workers’ rights outside of Germany and the global pattern of corruption. The problem is that they have been getting away with it. Governments must make sure they don’t fund tax dodgers or corrupt companies.”
Fresenius avoids its tax liability by reporting high profits where corporate taxes are low. In markets such as Australia, Germany and India, profits are artificially reduced. Although Fresenius generates its sales primarily in countries with a corporate tax rate of at least 30%, the company’s global tax rate in 2018, according the company’s own filings, was only 18.2%.
“A company that is committed to the well-being of people and generates its sales largely through government healthcare budgets should pay its taxes responsibly and transparently,” says Christoph Trautvetter, a tax expert from the Tax Justice Network in Germany. The German government also has a duty, he said: “Germany should support the EU proposal on public country-by-country reporting and push for a real reform of international corporate taxation instead of joining the ruinous race to-the-bottom by lowering its corporate tax rates and wrongly equating national interest with that of big business.”
Last week, the SPÖ tax expert and MEP Evelyn Regner said there was an urgent need for action:
“When it comes to creative tax tricks, you don’t always have to look across the pond towards Amazon and Starbucks; European companies also master this dubious craft. We see clearly again today that multinational companies use all loopholes to minimize their tax payments.” “And this at a time when the need for public investment for climate protection and our infrastructure is increasing. It is a case study of many, we have to finally stop these all too often legal business practices, at EU and global level.”
Editor’s Note: The study can be found at: http://cictar.org/fresenius/
Jason Ward is Principal Analyst at the Centre for International Corporate Tax Accountability & Research (CICTAR). Ward has been a frequent commentator on corporate tax issues as an analyst and spokesperson for the Tax Justice Network – Australia (TJN-Aus). He is currently an adjunct senior researcher with the University of Tasmania’s Institute for the Study of Social Change.