When we think about tax havens, the names of exotic and faraway islands come to mind, and we forget that these countries set their own tax agendas in order to attract investment and create jobs. To this aim, Invest in Spain has recently merged with the Spanish institute Español de Comercio Exterior (ICEX) and exists under the authority of the Ministry of the Economy. The Ministry of the Exterior has also offered these tax benefits to foreign multinationals.
The Spanish tax haven, created through foreign holding companies that pay tax rates of 0.5%, has been in operation since 1995. It was designed for capital to enter and exit Spain without going through the Ministry of Finance. Further, the holding companies are exempt from paying dividends. The law provides a cushy tax haven for Spanish residents to avoid paying taxes. The foreign holding companies, which benefit from support from EU institutions, have become a wellspring for fraud, a drain on Spain?s tax revenues and a source of conflict with other countries.
For example, Exxon's office in Spain only employs one administrator, does not pay any taxes, but claims a five-million euro tax exemption annually. The law produces a huge discrepancy between multinational corporations and national citizens who during the current crisis have been subject to continuous tax hikes. The imbalance is unsustainable, because it attempts to increase corporate earnings by creating a tax haven here in Spain, but ultimately has failed to achieve this goal and undermined the state's ability to raise tax revenues.
