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International tax system enables systematic shift of wealth from the Global South to the North

The useful daughters from Freiburg

The global tax system is on the move - so far without improvements for the countries of the Global South. This is also due to Switzerland, as the example of the agricultural company Socfin shows.

By Jan JirátMail to author:inTwitter profile of author:in

The sweat flows in Sierra Leone, the profits to Europe: palm oil plantation of the Socfin Agricultural Company.PHOTO: MAJA HITIJThe news sounds good: at the G20 summit held in Rome last weekend, the most important economic powers agreed on a global minimum tax of 15 per cent to be introduced in 2023. The tax is a central component of a global reform coordinated by the Organisation for Economic Co-operation and Development (OECD), which is intended to curb tax competition between states and make it more difficult for large corporations to avoid taxes. After the meeting, the designated German Chancellor Olaf Scholz (SPD) spoke of an "enormous success for all of us".

This is exactly what Dominik Gross, tax expert of the development NGO Alliance Sud, questions: "For the Global South, the reform will bring almost no additional tax revenue. The proposed global minimum tax rate of 15 per cent is much too low - in view of the current tax rates in the South, which are mostly between 25 and 30 per cent. Many countries would come under pressure to lower their tax rates to the minimum rate, Gross said. "To prevent this 'race to the minimum', we would need a rate of at least 21 per cent." Above all, however, the new mechanisms would not prevent profit shifting from one country to another within multinational corporations - to the detriment of the Global South, according to Gross. An example of this is the agricultural company Socfin.

Colonial past

At the end of October, Alliance Sud, together with the Swiss NGO Bread for All and the German network Tax Justice, published a comprehensive report that uses Socfin as an example to illustrate the methods used to shift profits from raw material extraction in the Global South to Switzerland.

Socfin, a listed company based in Luxembourg, operates rubber and palm oil plantations mainly in West Africa and Southeast Asia. It employs 48,300 people and manages sixteen plantations on a total area of 193,000 hectares. The Belgian agronomist Adrien Hallet founded the company in 1909, having previously established the first rubber plantations in the then Free State of Congo, a systematically plundered private colony of the Belgian King Leopold II. Today, the Belgian businessman Hubert Fabri and the French conglomerate Bolloré are the most important shareholders. Incidentally, company boss Vincent Bolloré, as a media mogul, has played a major role in the current political rise of the extreme right-wing French publicist Éric Zemmour, who is expected to run for president next year.

The great merit of the "Socfin Report" lies in the detailed description of the complex structure of the agricultural group, which last year achieved a turnover of 605.3 million euros and a profit of 29.3 million. Within this structure, two subsidiaries based in the low-tax canton of Fribourg play a key role: Sogescol FR SA is responsible for a large part of the rubber trade, while Socfinco FR SA takes care of plantation management and provides services within the group.

"Our analyses are largely based on publicly available annual reports from several countries in which Socfin is active," says Christoph Trautvetter of the Tax Justice Network. Among them is a detailed financial report from Luxembourg. "The country remains a tax haven, but at least it is transparent. That cannot be said of Switzerland. Neither are detailed annual reports available here, nor do the cantonal tax authorities provide information," said Trautvetter.

The available material allowed, among other things, the analysis of the profits per employee:in in the different countries - a figure that vividly shows where a corporation shifts its profits and what value is placed on labour. In the African countries where Socfin is active, the group made a profit of a good 1600 euros per employee:in. The Swiss subsidiaries, on the other hand, recorded a profit of 116,000 euros per employee:in 2020. How can this be explained?

Postcolonial Presence

The magic word is profit shifting. For example, the report suggests that of Socfin's total turnover of 605 million euros, more than 100 million end up in Europe, most of it again in Switzerland. "Part is fees for management and technical services. Whereby it is practically impossible to check the accuracy of these fees," says Trautvetter. Even more significant, however, are the surcharges for intra-group trade in goods. "Here, the Swiss subsidiary Sogescol FR is probably decisive in its role as an intermediary. For example, it buys rubber from a plantation in Liberia and then sells it - at a higher price - to a customer in China. The price difference remains in Switzerland," says Trautvetter.

This widespread practice is not necessarily illegal - "but unfair in any case", says Silva Lieberherr of Bread for All. The flawed rules of the global tax system would allow companies to allocate large parts of value creation to central functions such as patents, financing or management, which are often located in the Global North, while work in the Global South is given less weight. "This reinforces inequality and resembles colonial structures in the way wealth is systematically transferred from the Global South to the Global North," Lieberherr said.

Goodbye, tax secrecy

WOZ confronted Socfin with the report. The group replied: "Socfin firmly rejects the baseless accusations of the non-governmental organisations. No tax authority accuses the Socfin Group of abusive behaviour." The group does not enjoy any tax privileges in Switzerland. The Fribourg tax authorities did not want to comment on the facts of the case, citing tax secrecy.

In order to advance global tax justice, Switzerland must drastically improve its transparency regulations - for example by publishing financial reports of (subsidiary) companies based here, demands Dominik Gross of Alliance Sud. "And above all, an overall corporate taxation should form the core of a global tax reform. This envisages adding up the profits of the individual units to an overall group profit and then distributing them according to various factors - wage costs, investments, turnover - to the individual countries that contribute to the group's value creation." That would then be a success for everyone.

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