Multinational firms avoid paying tax

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Many multinational corporations operating in Norway have been avoiding paying taxes by using creative accounting and loopholes in the tax system. Norwegian politicians are calling for tighter rules and a revision of tax laws to plug the holes.

They’re calling such behaviour by foreign companies “theft,” after new data showed just how many billions of Norwegian kroner are sent over the border. Norwegian companies are in the spotlight, too, after Norwegian Broadcasting (NRK) reported Wednesday that as many as 60 percent of companies operating in Norway aren’t paying tax on profits.

‘Money should stay in the country’
“Tax avoidance is theft,” Audun Lysbakken, head of the Socialist Left party (SV), told NRK. Multinational companies find ways to send money out of Norway and into countries with lower tax rates, he noted. “This is money that should stay in the country, be taxed here and spent on health, schools and railways,” Lysbakken said.

Fresh data from the Norwegian Tax Administration (Skattedirektoratet) showed six out of 10 companies operating in Norway are not paying any taxes. More alarmingly, authorities believe that more than half of the NOK 29 billion (USD 5.2bn) that wasn’t reported for tax payment originates from questionable tax adjustments by multinational groups.

The companies are believed to avoid taxes through so-called “internal pricing” across borders. For groups operating in more than one country, it is financially beneficial to have high costs in countries where taxes are high, such as in Norway, while revenues are registered in countries with lower taxes. The question is, what is the right price when companies in the same group buy and sell products and services across borders?

“We have had large cases concerning ‘internal pricing’ in the past few years, this amounts to more than NOK 16 billion for 2011,” Svein Kristensen, tax director at Norwegian Tax Administration, told NRK.

Not illegal
Lysbakken of SV called on the government coalition, of which his party is a member, to strengthen Norwegian tax authorities’ resources and continue to work on tax deals with low-tax countries, the so-called tax havens. “What these companies are doing is not always illegal because there are holes in the tax laws,” Lysbakken said.

Jan Tore Sanner of the Conservative Party agreed that Norwegian tax laws need to be revised. “We believe it is necessary to go through the tax laws to see if there are holes making tax avoidance possible,” Sanner told NRK.

Tax Director Kristensen said that although general tax avoidance in Norway is alarmingly high, he is not surprised over the low number of taxable Norwegian companies. “You pay taxes on the surplus. Many companies do not have a surplus or they have previous losses that are deductible,” he said.

Multinational groups’ tax avoidance is part of an international debate, especially after revelations that successful companies such as Google and Starbucks pay little or no tax in many countries. To improve its reputation, Starbucks has agreed to pay GBP 20 million (USD 31.7 m) in taxes in Great Britain.

“Large multinational corporations that do not pay taxes underestimate our ability to tax companies,” Jarle Møen, a professor at the Norwegian School of Economics (NHH), told NRK.  Møen said local businesses in Great Britain have argued it is bad for competition when a local coffee house pays 20 percent in taxes while Starbucks gets away with only 2-3 percent.

“This is something to take seriously.” Møen said. “For businesses and authorities in Norway this tax debate is far more important than the debate about fortune tax,” he added, referring to ongoing controversy over Norway’s practice of taxing personal net worth.

Views and News from Norway/Aasa Christine Stoltz

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