How Total escaped tax on 10 bln euros in profit

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French oil giant Total paid zero euros in corporate tax in France in 2010 despite posting a profit 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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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.

 © Reuters © Reuters
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.

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Reporter's note: For the past three years, the French finance and budget ministries have refused to answer questions submitted by Mediapart. Contacted for a response to the issues raised in this article, the budget ministry once again did not return our call.