THE SOCIAL STATE IS AFFORDABLE

Mammoth corporations pay less and less taxes. Ernst Schmiederer and Hans Weiss show the tricks they use and how our tax laws help them.

Book Review of Ernst Schmiederer/ Hans Weiss “Asocial Market Economy. Insiders from Politics and the Economy Reveal how Conglomerates Plunder the State” (Asozial Marktwirtschaft), Koln 2004

By Robert Misik

[This book review originally published in: die tageszeitung, 10/9/2004 is translated from the German on the World Wide Web,  http://www.taz.de/pt/2004/10/09/a0392.nf/textdruck.]


Agreement resounds from industrial bosses to commentators: taxes are too high. The social state cannot be financed. The state grows rampantly. All of us are the mourners. “Tax and spend- liberals” are the greatest danger. The “Drive-down taxes”-ideologues are largely immune to empirical reality.

Still help is available. In their book “Asocial Market Economy”, the journalists Ernst Schmiederer and Hans Weiss meticulously show “how conglomerates plundered the state”. In short, the social state may be bankrupt but the money is not far away. The money is in the pockets of big business.

Well-researched and written smoothly, the report deserves a prize. Hans Weiss has had experience with the trade. From the “Bitter Pill” to the “Black Book on Brand-Name Firms”, he has concentrated on this kind of research. Ernst Schmiederer who made a name for himself as New York correspondent of the Vienna newsmagazine profil is the co-author. All over Europe, the authors sought to uncover the tax tricks of the multinationals.

Weiss posed as a rich heir and flew to Jersey to advise the local subsidiary of Deutsche Bank. Like a few other offshore tax havens, this British channel island is notorious as a contact address for all who want to multiply their millions in overdrive. Ernst Schmiederer disguised himself as a representative of a Slovenia-American investor group and set out on an office search in a North German hole Nordfriederichskoog whose trade tax rate was exactly zero for years. The place had a magical attraction for German and international corporations that established post-office subsidiary firms there.

The trade taxes saved by the firms were missing elsewhere – in this case in the communities where these firms resided and paid taxes in the past. According to estimates, 800 million Euro were lost every year through the Nordfriederichskoog case alone.

The transfer of the corporate headquarters to an attic roo9m over a stinking hole is one of the most bizarre and amusing examples for the very individual tax savings models of large corporations. Internationally active businesses like their relations between parent companies and local subsidiary firms to be completely private so that only “losses” occur year after year in high tax countries and all their “profits” are heaped up in low tax countries. Another variant is in the mathematical indebtedness of the subsidiary with the parent company so that no profit arises any more as a result of high interest estimates. The profit is transferred effortlessly and completely legally to tax havens in Switzerland, the islands or at best Mauritius.

The consequences of these operations have long been dramatic since the governments – hectically striving to stop corporations from migration – have lowered business taxes for years or structured the tax laws so they offered good possibilities for creative organization. Many German communities face bankruptcy. Forty years ago 20 percent of the tax revenue came from profit- and property taxes. Today the amount is only 6 percent. In 1983 the corporation tax amounted to 14 percent of German tax revenue. Today it is a weak 2.3 percent.

The examples compiled by Weiss and Schmiederer are incredible. For years, Deutsche Bank did not pay any profit taxes but instead received tax refunds. Siemens, a showpiece corporation, received 119 million Euro in tax refunds from 2001 to 2003. For over a decade, DaimlerChrysler did not pay a cent in trade taxes in Stuttgart or Sindelfingen. The food multinational Unilever likes to channel Euros so that scandalously little comes to the authorities.

That “we” can no longer afford the social state is gossip. Thinking this gossip will end is wishful thinking. In truth, we cannot afford the prevailing financial policy.