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Spain's corporate tax take takes a fall

By Catholic Online (NEWS CONSORTIUM)
October 3rd, 2012
Catholic Online (www.catholic.org)

In sunny Spain, one of Europe's stronger economies, smaller businesses have failed and a growing number of big corporations have begun to seek profits abroad to compensate for the extended economic downturn at home. As a result, Spain's corporate tax take has tumbled by almost two thirds from pre-crisis levels.

LOS ANGELES, CA (Catholic Online) - For Prime Minister Mariano Rajoy's government, which seems perched to accepting a European financial rescue, the income flow is reversed.
 
Rajoy has passed 65 billion euros, or $84 billion in U.S. dollars of austerity measures including public sector wage cuts and consumer tax hikes. Spain has been highly reluctant to lean on businesses that are essential to maintaining jobs at a time when one in four Spaniards is unemployed.

Spain is still home to globally successful corporations such as banks Santander and BBVA, telephone operator Telefonica and oil company Repsol.
 
These five companies generated a net profit of 17.8 billion euros in 2011, outstripping the 16.6 billion euros the government raised in corporate tax from a total 1,400 Spanish businesses that year.

"Big corporations are paying less and less in taxes. Their profits have not fallen at the same pace that their (Spanish) tax contribution has fallen," Carlos Cruzado, chairman of Treasury Ministry trade union GESTHA says.

That these five companies have remained solvent is largely thanks to earnings abroad. However, as foreign profits are generally taxed where they are made, Spain's coffers have seen less and less.

According to 2011 data from the Spanish Tax Agency, Spain receives a smaller proportion of corporate income than personal income, with businesses paying 11.6 percent of total group profits in Spanish taxes compared with 12.4 percent for individuals.

Spain's sharp fall in tax collection reflects upon the disappearance of hundreds of firms linked to the property and construction sectors after the 2008 crash.

While the government wants to increase tax returns, it doesn't want to limit companies' scope to invest and employ more. Its 2013 budget unveiled last week focused on spending cuts rather than new taxes.

To his credit, Rajoy eliminated some corporate tax breaks in 2012, a policy he will continue in 2013, Rajoy has also brought forward some tax payments, though that could be storing up problems.

"We might ask ourselves if the rise in prepayments in 2011 won't mean a fall in revenues for 2012," Spanish tax lawyer Javier Galan said.

The Tax Agency said the tax base, excluding prepayments, continued the "drastic decline" seen in the past three years.

So far the conservative government has said total tax revenue would be higher than originally budgeted in 2012.

Rajoy is also struggling to tackle a large "black economy" estimated to account for 20 percent of gross domestic product.

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