Yahoo Finance How SAP Trims Its U.S. Tax Bill
1/12How SAP Trims Its U.S. Tax Bill
German Finance Minister Wolfgang Schaeuble (L) talks to his U.S. counterpart Timothy Geithner in Westerland on the German island of Sylt in this July 30, 2012 file photo. In Schaeuble's letter he sought Geithner's support for international action against legal tax dodging. Profit shifting, the finance minister said, was largely a problem involving U.S. companies. Tax rules in Germany made it more difficult there. This "could explain why we do not know of German companies with comparable tax arrangements to the U.S. companies," the letter, seen by Reuters, said.REUTERS![An examination of the accounts of one of Germany's largest firms shows it uses similar techniques. Without them, it would pay more than 100 million euros ($133.53 million) in additional tax each year, some of it to the United States.]()
2/12How SAP Trims Its U.S. Tax Bill
An examination of the accounts of one of Germany's largest firms shows it uses similar techniques. Without them, it would pay more than 100 million euros ($133.53 million) in additional tax each year, some of it to the United States.REUTERS![SAP AG provides software for businesses to process and analyze transactions, counts 80 percent of the Fortune 500 as customers and has a market capitalization of $90 billion, making it the fourth biggest firm in Germany. Its accounts show that it - like U.S. tech firms such as Google and Microsoft - channels profit to subsidiaries in Ireland, where the corporate tax rate is 12.5 percent. The comparable rate in Germany is 30 percent and in the United States, SAP's largest market, 39 percent, according to the Organisation for Economic Cooperation and Development (OECD), an international think tank.]()
3/12How SAP Trims Its U.S. Tax Bill
SAP AG provides software for businesses to process and analyze transactions, counts 80 percent of the Fortune 500 as customers and has a market capitalization of $90 billion, making it the fourth biggest firm in Germany. Its accounts show that it - like U.S. tech firms such as Google and Microsoft - channels profit to subsidiaries in Ireland, where the corporate tax rate is 12.5 percent. The comparable rate in Germany is 30 percent and in the United States, SAP's largest market, 39 percent, according to the Organisation for Economic Cooperation and Development (OECD), an international think tank.REUTERS![SAP, which is headquartered in Walldorf, Germany, has paid a global annual tax rate in the last three years averaging 26 percent. That's nearly 20 percentage points less than the company paid a decade earlier.]()
4/12How SAP Trims Its U.S. Tax Bill
SAP, which is headquartered in Walldorf, Germany, has paid a global annual tax rate in the last three years averaging 26 percent. That's nearly 20 percentage points less than the company paid a decade earlier.dapd![Like other German companies, SAP has benefited from significant German tax cuts over that time, but it is only taxed on part of its profits in Germany. The company is structured so that Ireland, which accounts for less than 1 percent of its sales and employees, is the home base for 20 percent of its profits. SAP uses Dublin as a base for know-how and other intellectual property generated by staff around the world, and has an Irish subsidiary lend billions of dollars to a U.S. affiliate for much higher interest rates than the group pays on the open market.]()
5/12How SAP Trims Its U.S. Tax Bill
Like other German companies, SAP has benefited from significant German tax cuts over that time, but it is only taxed on part of its profits in Germany. The company is structured so that Ireland, which accounts for less than 1 percent of its sales and employees, is the home base for 20 percent of its profits. SAP uses Dublin as a base for know-how and other intellectual property generated by staff around the world, and has an Irish subsidiary lend billions of dollars to a U.S. affiliate for much higher interest rates than the group pays on the open market.REUTERS![There is nothing illegal about this; the company said profits reported in Ireland reflect genuine economic activity and risks borne by Irish subsidiaries, and the structure was driven by operational rather than tax motives. "SAP didn't come to Ireland for taxes," Liam Ryan, who heads SAP's Irish operation, told Reuters at the group's campus in the leafy Citywest office park on the outskirts of Dublin. "The reason SAP invests here is because we deliver."]()
6/12How SAP Trims Its U.S. Tax Bill
There is nothing illegal about this; the company said profits reported in Ireland reflect genuine economic activity and risks borne by Irish subsidiaries, and the structure was driven by operational rather than tax motives. "SAP didn't come to Ireland for taxes," Liam Ryan, who heads SAP's Irish operation, told Reuters at the group's campus in the leafy Citywest office park on the outskirts of Dublin. "The reason SAP invests here is because we deliver."REUTERS![Tax authorities in Germany and the United States declined comment, citing rules on taxpayer confidentiality. A spokesman for Finance Minister Schaeuble said he would not comment on specific companies.]()
7/12How SAP Trims Its U.S. Tax Bill
Tax authorities in Germany and the United States declined comment, citing rules on taxpayer confidentiality. A spokesman for Finance Minister Schaeuble said he would not comment on specific companies.dapd![Sven Giegold, a German member of the European Parliament and spokesman on economic affairs with the Green Party, said, "This shows U.S. companies are not alone in engaging in clever tax planning." He said the arrangements were clearly "contrived... It is obvious that these arrangements are tax motivated. It is not convincing to say otherwise."]()
8/12How SAP Trims Its U.S. Tax Bill
Sven Giegold, a German member of the European Parliament and spokesman on economic affairs with the Green Party, said, "This shows U.S. companies are not alone in engaging in clever tax planning." He said the arrangements were clearly "contrived... It is obvious that these arrangements are tax motivated. It is not convincing to say otherwise."dapd![Corporate tax is an increasingly touchy topic as indebted governments cut budgets. Last year, Schaeuble worked with colleagues from France and Britain to launch a major review of international tax rules aimed at ensuring multinationals pay their fair share and at reducing what has become known as "base erosion and profit shifting" (BEPS). Governments aim to agree new rules in a couple of years.]()
9/12How SAP Trims Its U.S. Tax Bill
Corporate tax is an increasingly touchy topic as indebted governments cut budgets. Last year, Schaeuble worked with colleagues from France and Britain to launch a major review of international tax rules aimed at ensuring multinationals pay their fair share and at reducing what has become known as "base erosion and profit shifting" (BEPS). Governments aim to agree new rules in a couple of years.dapd![Edward Kleinbard, Professor of Law at the University of Southern California, says U.S. business lobbyists have depicted these efforts at tax reform as anti-competitive, a bid to weaken U.S. firms by having them pay more tax to overseas governments.]()
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Edward Kleinbard, Professor of Law at the University of Southern California, says U.S. business lobbyists have depicted these efforts at tax reform as anti-competitive, a bid to weaken U.S. firms by having them pay more tax to overseas governments.dapd!["U.S. firms have designed a good deal of their domestic lobbying on BEPS along the lines that BEPS is all about bashing American success," said Kleinbard, who was formerly Chief of Staff of the U.S. Congress's Joint Committee on Taxation. But he said the case of SAP shows the United States is also a victim of tax avoidance by foreign companies; the U.S. treasury, too, could benefit from tax reform.]()
11/12How SAP Trims Its U.S. Tax Bill
"U.S. firms have designed a good deal of their domestic lobbying on BEPS along the lines that BEPS is all about bashing American success," said Kleinbard, who was formerly Chief of Staff of the U.S. Congress's Joint Committee on Taxation. But he said the case of SAP shows the United States is also a victim of tax avoidance by foreign companies; the U.S. treasury, too, could benefit from tax reform.dapd![In January 2012, a fund manager at a presentation for investors in Frankfurt asked SAP's chief financial officer, Werner Brandt, how the company had managed to reduce its effective tax rate so much "in the last few years", given "an environment where countries need more taxes and have stretched budgets."]()
12/12How SAP Trims Its U.S. Tax Bill
In January 2012, a fund manager at a presentation for investors in Frankfurt asked SAP's chief financial officer, Werner Brandt, how the company had managed to reduce its effective tax rate so much "in the last few years", given "an environment where countries need more taxes and have stretched budgets."dapd
Updated
In July 2012, then-U.S. Treasury Secretary Tim Geithner traveled to an island off the German coast to meet Wolfgang Schaeuble, Germany's finance minister. Schaeuble was on vacation, but Geithner visited to discuss the euro zone crisis. Talk also turned to a long-running bugbear of Schaeuble's: corporate tax avoidance.
According to a letter Schaeuble later wrote to Geithner, the Treasury Secretary had explained in their conversation that the most aggressive forms of avoidance often involved technology companies parking valuable know-how in low-tax countries and making other parts of the company pay high rates to use it.
Reporting by Tom Bergin, REUTERS.
