Special Report: How a German tech giant trims its U.S. tax bill

  

In July 2012, then-U.S. Treasury Secretary Tim Geithner traveled to an island off the German coast to meet Wolfgang Schaeuble, Germany's finance minister. Schaeuble was on vacation, but Geithner visited to discuss the euro zone crisis. Talk also turned to a long-running bugbear of Schaeuble's: corporate tax avoidance.

According to a letter Schaeuble later wrote to Geithner, the Treasury Secretary had explained in their conversation that the most aggressive forms of avoidance often involved technology companies parking valuable know-how in low-tax countries and making other parts of the company pay high rates to use it. In Schaeuble's letter he sought Geithner's support for international action against legal tax dodging. Profit shifting, the finance minister said, was largely a problem involving U.S. companies. Tax rules in Germany made it more difficult there. This "could explain why we do not know of German companies with comparable tax arrangements to the U.S. companies," the letter, seen by Reuters, said.
But an examination of the accounts of one of Germany's largest firms shows it uses similar techniques. Without them, it would pay more than 100 million euros ($133.53 million) in additional tax each year, some of it to the United States.
SAP AG provides software for businesses to process and analyze transactions, counts 80 percent of the Fortune 500 as customers and has a market capitalization of $90 billion, making it the fourth biggest firm in Germany. Its accounts show that it - like U.S. tech firms such as Google and Microsoft - channels profit to subsidiaries in Ireland, where the corporate tax rate is 12.5 percent. The comparable rate in Germany is 30 percent and in the United States, SAP's largest market, 39 percent, according to the Organisation for Economic Cooperation and Development (OECD), an international think tank.