French oil giant Total paid zero euros in corporate tax in France in 2010 despite posting a profit that year of more than 10 billion euros. It is one among France's five most profitable companies which enjoy a generous corporate tax break cutting millions of euros from their fiscal bills. The French government meanwhile appears to be in no hurry to close the loophole. Martine Orange reports.
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In 2010, Total reported profits of 10.5 billion euros, the highest of the French Blue Chip Cac-40 index. It is is preparing a payoff of 5.2 billion euros in dividends to shareholders, yet the oil company will pay no French corporate tax - for the second year running. Total benefits from a tax loophole that illustrates the iniquity and incoherence of French fiscal law and reveals the government's unwillingness to take on the issue.
In a 2008 report on Corporate Fiscal Regulation,the government's Tax Council (le Conseil des prélèvements obligatoires), which is answerable to the national audit office, (la Courdes comptes), highlighted the fiscal gulf between large companies and small-and medium-sized firms. Mastering the art of optimisation, the large groups contrive to bring their rate of corporate taxation - in theory 33.3 per cent - to an average of 8 per cent. Smaller firms, for their part, are taxed, on average, at over 20 per cent.
The difference was already a blatant one, but with Total it reaches a new level of distortion. To justify paying no corporate tax while paying out halfof its profits in shareholder dividends, Total, France's wealthiest company, argues that it paid a lot of taxes - in oil-producing countries.
Enlargement : Illustration 1
In France it also paid taxes to the tune of 800 million euros last year. But most of this, 500 million euros, came from a withholding tax on dividends paid to foreign shareholders. The rest, 300 million euros, was a mix of business, property and local taxes. As for the corporate tax exemption, the company blames the economic situation. "We didn't pay any corporate tax in 2009 and 2010 because our activity in France was in deficit," a Total spokeswoman told Mediapart. "Refining activities in France are still in big difficulty and distribution margins were very reduced. We lost 250 million euros in 2009 and 16 million euros in 2010," she added, suggesting a loss of 16 million euros in France on a total profit of 10.5 billion justified an exemption from corporate taxation.
The oil company, in any case, enjoys a special status. For years it has benefited from a major financial loophole - consolidated global profits. This mechanism is a disguised subsidy to French firms investing abroad. It allows them to deduct deficits in other countries from the profits made in France. This reduces the amount of corporate tax owed to the tax collector. "This system only has real interest if the group taxable in France can reduce the corporate tax due in our country by taking into account deficits incurred abroad.If the opposite is true, when profits are posted abroad and are often taxable at a rate lower than in France, then the global consolidated profit system is unfavourable," the Tax Council noted in its October 2010 report on Corporate Tax and Welfare Payment Loopholes.
And that is what Total argues: the system is not advantageous to the firm all the time and it has been on the losing end for the past three years. This is perplexing since the firm has paid no corporate tax for two years and it is unclear what more it can hope to gain from the arrangement.
The number of firms requesting to benefit from the consolidated global profits mechanism is constantly dropping. From 11 companies in 2000, there were only five in 2010. These include Total, Vivendi, NRJ and Euro Media Group. This major loophole cost the state 302 million euros in lost revenues in 2010, according to the Tax Council's estimates. It recommended that the loophole be closed.
An under-costed loophole
While 302 million is a tidy sum for only five companies, the loss may actually be greater than that. There are some glaring differences between the figures provided by the government and those published by the firms. Media and communications conglomerate Vivendi, for example, has benefited from the consolidated global profits system since 2004. Its inclusion in the system was approved by French President Nicolas Sarkozy, then Minister of Finance, in exchange for the commitment to create 600 jobs in call centres in the town of Douai in north-western France and in Belfort in the east. The measure cost about 30 million euros in lost tax revenue. Vivendi requested, and obtained, that the agreement be renewed in 2008 in exchange for a promise to spend 5-6 million euros on jobs.
The company was allowed to use 10 billion euros of foreign debt accumulated during the Jean-Marie Messier years1 to reduce its tax burden. In 2006, the Tax Office reimbursed Vivendi 505 million euros; in 2007 the company was reimbursed 603 million euros; in 2008 it got back 548 million euros; 500 million euros were reimbursed in 2009 and in 2010 the group got back 580 million euros. In short, Vivendi benefited from a tax savings of more than 2.5 billion in taxes over five years, all of which found its way into the shareholders' pockets.
It's unclear how a single firm was able to obtain that kind of rebate when, officially, the government estimates for 2010 and 2011 evaluate the cost to public finances at 461 million euros for both years combined. Socialist Party Member of Parliament Jérôme Cahuzac, chair of the National Assembly's Finance Committee, has expressed surprise at the discrepancy. It is possible that the loophole is more costly than previously admitted. The budget minister has been questioned on this issue but no response has been forthcoming.
Total does not seem ready to give up this generous loophole. It is in the process of negotiating the renewal of its authorisation to apply the consolidated global profits mechanism for another three-year period. "At a time when households are bearing the brunt of price hikes, it isn't very reasonable to renew this loophole for another three years," said Cahuzac, who is calling for the tax break to be totally and rapidly repealed. But the government doesn't seem to question the logic of maintaining this loophole for France's most profitable company.
The government is sending out conflicting signals with on the one hand, budget minister, François Baroin, about to approve Total's extension, on the other hand, the Prime Minister's office is putting on a show of battling soaring energy prices. The prime minister called a meeting of all energy sector professionals on April 13th to study a series of measures to control prices. The government is considering the taxing of oil company profits, a measure expected to bring in 100 million euros. The industry has already said it considers the proposed tax an unbearable burden.
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1: Jean-Marie Messier became CEO of the Compagnie Générale des Eaux, a water utility, in the mid-1990s, transformed it into a multinational conglomerate and rebranded the firm Vivendi. The empire collapsed in 2002 and Messier was forced to resign leaving the firm mired in debt. The group has since recovered. Click here for more.
English version: Patricia Brett
(Editing by Graham Tearse)