If in your company you sell products or offer services at a price below their real cost, you should know that you are practicing dumping.
There are many companies that, without knowing it, practice dumping, so in AYCE Laborytax we want to explain what dumping is,what its objective is, and what consequences it will generate in your company if you practice it.
What is dumping?
Based on the fact that in Spain, each autonomy has the capacity to regulate different types of taxes, the amount of taxes that a company must pay will vary depending on the place where its registered office is located.
This makes many companies, with the aim of paying the minimum possible taxes,locate their headquarters in one community or another, although then their production or distribution centers are distributed throughout the country. A practice known as tax dumping, the main objective of which is for a company to enjoy better tax treatment.
Dumping, in addition to allowing a company to pay less tax, also causes the different autonomies to fight to try to attract entrepreneurs,and thus obtain extra sources of income.
This practice can also occur in international trade,when a product is sold in the importing country, at a lower price than the same product is sold, in the exporting country.
What taxes are affected by dumping?
The Autonomous Communities in our country have the capacity to act on certain taxes,which directly affect both individuals and companies. Here we must separate the Basque Country and Navarre, since they have a special economic agreement.
That said, here are the taxes that autonomies can alter:
- Wealth tax:
The wealth tax, also known as the large fortunes tax, will be different in each Autonomous Community. This tax directly affects the assets of individuals or companies exceeding two million euros.
- Inheritance and gift tax:
In some autonomies, the amount to be paid for this type of tax varies. This has generated a great controversy, since there are many citizens who have changed their residences or the headquarters of their companies to these autonomies, in order to take advantage of this tax advantage when making a donation.
- Environmental taxes:
Environmental taxes affecting companies can also be freely regulated by each autonomous community.
This provokes complaints from the different autonomous communities, which have industries located in bordering areas between them, and are located in the place that offers them the most tax advantages. The problem is that being bordered, it affects the activity of different populations of both autonomous communities.
- Property and real estate taxes:
Another of the taxes regulated by each autonomous community are taxes on property and real estate. These taxes are collected by municipalities, and can be very different in one municipality or another.
This is also the case with taxes on mechanically driven vehicles, which are really low especially in smaller municipalities, in order to try to attract resources.
Consequences of dumping for companies
Although at first it may seem a beneficial practice for companies, the truth is that in the long run it brings multiple negative consequences,not only for the company, but also for the community or the importing country.
After all, dumping is a practice of unfair competition,whereby a company can sell a product at a price below the market. The problem is that the vast majority of companies that opt for this practice, end up ceasing their activity by not achieving the stability or the expected advantages.
The majority of companies that practise dumping do so because of the existing competition with companies belonging to other countries of the European Union,which receive much more beneficial tax treatment. Ireland and Luxembourg, which are in the firing line for this type of situation, must be particularly highlighted here.
An example is found in Apple Spain, which having located its European headquarters in Ireland, pays less tax than a small company, even generating a much lower amount of income, which makes them unable to compete, and end up ceasing their activity.
So that this does not happen, it is demanded that both the different states and autonomies have maximum and minimum limits, in order to avoid that the advantages in the taxation of companies can generate great difficulties.
Dumping exists when a company sells its products at a price much lower than that fixed on the market, in order to compete more effectively. The sale of products at lower prices is possible because they locate their headquarters in autonomies or countries that offer them a series of tax advantages, which in the long run, are translated into a series of negative consequences, not only for the companies themselves, but also for the community or importing country.