A paper produced on behalf of the Greens in the European Parliament with the title “Harmful tax competition – How Bayer rigs corporate taxation in Europe” deals with the issue of tax competition and brings serious accusations of manipulation perpetrated by Bayer. According to the allegations, the company “shifts” profits to minimize its tax burden without this actually being backed up by economic activities. What’s this paper all about – and how accurate is this criticism? Bernd-Peter Bier, Head of Group Finance at Bayer, took a closer look.
Let me start out by saying that there is no basis to these allegations. Bayer does not participate in artificial tax structures without business substance. Our site decisions are based mainly on strategic and operational aspects.
The title of the paper alone shows that it’s pure polemics: according to Merriam-Webster, the verb “to rig” means “to manipulate or control usually by deceptive or dishonest means.” When it comes time to provide any evidence whatsoever of this “rigging”, the authors have nothing to say.
“There is no basis to these allegations”
For example, the paper alleges Bayer has systematically reduced its average effective global tax rate through profit transfers. Yet the authors themselves state that Bayer’s average effective tax rate over the past ten years was 23.8 percent – which was almost always above the average tax rate in the E.U. So what exactly is the specific allegation here?
What the paper doesn’t mention, for example, is that tax rates change – in some cases substantially – due to political decisions. One example is the tax reform in the United States, where the corporate tax rate was reduced from 35 to 21 percent at the end of 2017. Obviously Bayer, too, benefited from that change – after all, the United States is our biggest individual market.
The authors also allege that Bayer has avoided about three billion euros in taxes through profit transfers. Yet these supposed tax savings are completely fabricated, and the method used to determine them is dubious. The authors compare the effective tax burden with the sales-weighted nominal tax rates in just five major countries. It’s an apples to oranges comparison. This method not only fails to account for the actual local value added, but also ignores the fact that companies have costs or losses that are factored into taxable income based on local tax laws.
It’s not at all new for the Greens to make such allegations – sometimes they are directed at one company and sometimes at another. Like a mantra, they always repeat the same locations that apparently are automatically suspicious: the Netherlands and the U.S. State of Delaware, and also of course so-called tax havens like Panama or Bermuda. In Germany there are certain municipalities that offer lower local business taxes (Gewerbesteuerhebesatz). Let’s look at whether and why Bayer is present in each of the aforementioned locations:
There can be no talk of “profit shifting”
Bayer’s products have been available in the Netherlands for decades. It is one of the world’s most significant markets for vegetable seeds, which is an important area for Bayer. For that reason alone, Bayer has a substantial footprint there with entrepreneurial substance in the form of a sizable workforce, in addition to sales and service functions. So there can be no talk here of “profit shifting.”
What’s more, the right of establishment and the free movement of capital are cornerstones of the European integration process that are backed by a broad political consensus. They help bring Europe closer together and diminish the importance of political boundaries. It’s thus a little surprising to see the impression conveyed that we need to justify our presence in the Netherlands – particularly in a paper that claims to speak from the E.U. perspective.
Bayer also maintains various companies in Delaware. That’s because Delaware has particularly unbureaucratic corporate law that significantly facilitates the founding and administration of companies and their sites. Tax reasons do not play a role here: companies domiciled in Delaware pay taxes at the federal level, and U.S. federal taxes – at 21 percent for corporations even without local taxes – are equivalent to the European average. It’s therefore a common misconception that Delaware is a tax haven – and constant repetition of that misconception doesn’t make it any more accurate.
A common misconception also has to be cleared up as regards Panama, Bermuda and other “tax havens.” As opposed to what is repeatedly suggested, a presence in such domiciles without any business substance does not offer tax advantages for German companies. That’s because German law heavily and rightfully restricts the possibilities in these cases – and profits achieved there would be additionally taxed pursuant to Germany's External Tax Relations Act.
In connection with acquisitions of U.S. enterprises, Bayer has also repeatedly had to acquire companies in such domiciles as part of the respective transaction packages. They had originally performed holding functions for the foreign business of the acquired company, for example. After being acquired by Bayer, such companies have no further functions and are therefore dissolved. Sometimes, however, these processes drag on, for example due to local bureaucracy.
German locations with low trade tax rates include Monheim am Rhein and now Leverkusen as well. These have been important and historically established Bayer sites with several thousand employees for a long time. The Bayer Group is headquartered in Leverkusen, and Monheim is home to the global headquarters of our agriculture business.
Here, too, it must be pointed out that the German constitution and the Federal Constitutional Court protect and promote tax competition between municipalities. Bayer’s site decisions are taken within a framework stipulated by the politicians – and the Greens have also helped to design this framework: the currently applicable minimum tax assessment rate under German business tax law was introduced in 2004 by the governing coalition between the Social Democrats and the Greens. The distribution of tax revenues among the federal government, the federal states and local authorities is the responsibility of legislators. The solution here could be to establish a balance at the municipal level where appropriate.
Conclusion: The Greens’ paper is purely a public relations stunt – with the sole purpose of drawing more attention to their tax policy demands. Of course, there is nothing objectionable about a party expressing its opinion on tax policy. Yet it is regrettable that this is being done at the expense of companies that make a major contribution to growth and prosperity.
Furthermore, the ideas being propagated here would have enormous consequences – not just in Germany, but for Europe in general. For example, we now generate only about 6 percent of Group sales in Germany but employ around one quarter of our workforce here. Germany – and thus Europe as well – nonetheless benefits especially in terms of taxes: for years now, we have paid an average of more than 50 percent of our global corporate tax in Germany. Yet even that is the subject of allegations by the paper’s authors ...