April, 15th 2011 - As gasoline and diesel prices climb, the spotlight is back on how oil company profits are taxed. The French government recently announced the introduction of a special tax on oil companies.
At the same time, a parliamentary commission has been set up to investigate large companies that do not pay corporate income tax in France.
Does Total pay income tax in France? Questions for Patrick de La Chevardière, Chief Financial Officer of Total.
Total reported a profit of €10.3 billion in 2010. Is it true that you don’t pay corporate income tax in France?
Total is an international company with strong roots in France, so that’s a legitimate question. But you have to remember that the €10.3 billion profit in 2010 was not earned in France. In fact, we’ve posted a loss in France since 2008, with a €16 million accounting deficit in 2010. So there’s a very good reason why we haven’t paid corporate income tax in France during this period. But we did before the recession and we hope that we will someday turn a profit again in France.
What about outside France?
We pay corporate income tax in any country where we make a profit. We paid more than €10 billion in corporate income tax in 2010.
Our overall tax rate is 56%, far higher than the French tax rate of 34%. It varies by host country — we operate in 130 — and by business. It can be as high as 85% for profits related to oil and gas production and as low as 30 to 35% for refining, marketing and chemicals.
So Total doesn’t pay any taxes in France?
That’s not the case. As I explained earlier, it all depends on how our businesses are doing. In fiscal 2005, 2006 and 2007, before the recession, we paid more than €700 million of corporate income tax in France.
We pay other French taxes, which each year add up to around €300 million. They include a special tax on businesses, the contribution économique territoriale, and a levy to help fund the social security system, known as the contribution sociale de solidarité des sociétés. And because Total is headquartered in France, the French government receives around €500 million a year in taxes withheld at source on the dividends that we pay to our foreign shareholders.
Going beyond the scope of taxes, we use some of our worldwide profits to invest and create jobs in France, thereby making a substantial contribution to the domestic economy.
How extensive are Total’s operations in France?
France is home to 18% of our production plants and 38% of our workforce, or more than 35,000 people (which represents €3.2 billion in salaries and payroll taxes). We also invest significantly in France. In 2010 for example, our industrial investments totaled more than €1 billion and our R&D spending amounted to €366 million.
Under the “consolidated worldwide profit” tax system, the tax we saved and the tax we paid have offset each other over the last ten years in France.
Does Total have a special tax status in France?
Total is one of a very few French companies covered by the “consolidated worldwide profit” tax system. That’s because France is one of the only countries to apply a territorial tax system for income tax, rather than a consolidated system that takes into account all of a company’s profits and losses worldwide. Because this situation distorted competition between French oil companies and their international competitors, in 1966 French lawmakers decided to allow oil companies to be taxed under a consolidated system. Without going into unnecessary detail, this consists of calculating the company’s French theoretical corporate income tax on its worldwide earnings, then deducting — applying very stringent caps — income tax already paid by foreign subsidiaries in order to avoid double taxation.
So you benefit financially
We benefit when we lose money outside France and make money in France. However, we pay the “saved” tax when foreign subsidiaries that had been loss-making turn a profit. That means that foreign profits are taxed in France. As a result, over the long term, the system is neither structurally favorable nor unfavorable in tax terms. In the ten-year period from 2000 to 2009, profits and losses offset each other. The system is particularly suitable for a business like ours with long cycles and puts us on an equal footing with our international competitors, who are covered by a comparable taxation system. Tax consolidation of our 800 subsidiaries and affiliates also makes it easier for us to effectively manage them and gives French tax authorities greater auditing powers: they can conduct tax audits of our foreign subsidiaries.
Key Indicators in France in 2010
• 35,169 employees
• €3.2 billion in salaries and payroll taxes
• 160 industrial plants operated
• Industrial investments of €1 billion
• R&D spending of €366 million