Tax, finance and development
After uncovering the tax structures of some US-based firms, notably Forest Laboratories and Google, Bloomberg has now been digging into a European one: Inditex, the fashion retailer known for its Zara stores. Read the full story here. The tax structure of Inditex is entirely different from that of Forest and Google, but it does have something in common. Guess what? Right… a Dutch entity that collects royalties.
Zara stores and shops of other Inditex chains pay licence fees to the Dutch entity for the use of the brand names and store concepts. Apparently Zara is a Dutch brand.
In the case of Inditex, the royalties don’t flow onwards to Bermuda. Instead, part of the royalty income is attributed to a Swiss branch of the Dutch entity, resulting in an effective tax rate of approximately 16% on the entity’s total profits.
In the Bloomberg article, I commented that splitting profits between a Dutch head office and a Swiss branch is a popular technique. Other foreign multinationals that used a structure like this include Nokia, ABB, Gunvor, and Bacardi-Martini. This shows that the Netherlands is not just a conduit country for financial flows. Sometimes Dutch entities – with or without Swiss branches – are also the final destination of corprate profits.