Grifols’ move to Ireland hits tax and political buttons

One part of the move had been long in the works by Grifols, a big Spanish medical company. The other came as a politically fraught surprise.

When Grifols, a global leader in blood-plasma products, held a ribbon-cutting ceremony for its new $100 million distribution center outside Dublin last month, the ceremony capped a long-planned project, one that would add 140 jobs to its small work force in Ireland.

It was the other part of the festivities the same day that few people outside the company were expecting. Grifols, which has 14,000 employees — more than half of them in the United States — announced that it would move its corporate treasury from Barcelona to Dublin. From there, Grifols will manage all its global payments, including taxes.

The timing of Grifols's move raised eyebrows, coming only about a week after the Irish government announced a new business-friendly corporate tax category. Grifols's treasury decision also came as European Union officials are taking a hard look at multinational companies' tax dealings with Ireland and some other countries in the region.

Grifols insists that moving its treasury operations to Dublin is not a case of tax engineering, but is meant to take advantage of a skilled Irish work force, the country's legal stability and its convenient geographic location between Continental Europe and the United States. It says the move will have no significant impact on the amount of taxes it will pay in the 30 countries where it does business.

But Grifols could emerge as an early explorer of Ireland’s newly announced tax category — a “knowledge box” that, if the Irish Parliament approves the plan, would grant a tax rate of 6.25 per cent on revenue and royalties pegged to patents and other intellectual property.

That rate would be half the already business-friendly 12.5 per cent corporate rate in Ireland; Spain’s nominal corporate rate of 28 per cent is due to drop to 25 per cent in January. (The corporate rate in the United States, before deductions, is 35 per cent.)

The Grifols example might also provide a test for a new agreement on international guidelines spelled out by the Organization for Economic Cooperation and Development. The rules are meant to crack down on tax avoidance by multinational companies and ensure that they are above-board in how they account for their taxes around the world.

“It’s not common to make such a big reorganisation and for functions to get moved away from Spain, and all in the same month as BEPS,” said Javier Vinuesa, a partner in the tax department of Gómez-Acebo & Pombo, a Spanish law firm. BEPS refers to “base erosion and profit shifting,” which the O.E.C.D. guidelines are meant to stop.

“I don’t see any other Spanish group doing this,” Mr. Vinuesa said of the treasury relocation.

Within Spain, where Grifols has about 3,000 employees, the decision to move the treasury to Ireland comes at a politically sensitive time.

The country is heading toward a general election next month in which income and tax disparities are major issues. There is also a fierce dispute between the Spanish government of Prime Minister Mariano Rajoy and Artur Mas, leader of Catalonia’s regional government, who has been pushing to secede from the rest of Spain.

The company’s chairman, Víctor Grifols, has been among the most prominent Catalan executives to defend Mr. Mas’s separatist movement. And Mr. Rajoy’s supporters are seeking to make political gains on Grifols’s decision to move part of its financial operations to Ireland.

The Grifols move is “bad news especially for Artur Mas,” according to Pablo Casado, a conservative lawmaker who is the spokesman for Mr. Rajoy’s Popular Party. Mr. Casado argued that Catalan companies “aren’t just leaving for taxes but also because of concerns about legal certainty” over the separatist movement.

The Spanish and Catalan authorities have been arguing over what the consequences would be for Catalan companies should their region secede. The president of the Spanish central bank recently warned, for example, that Catalan banks would be cut off from the funding of the European Central Bank, which has been critical for Spanish and other financial institutions that were crippled by the euro debt crisis.

Mr. Rajoy, who had angered businesses by raising taxes after he came to power in late 2011, has reversed course in the approach to the Dec. 20 election, pushing through the reduction in corporate taxes to 25 per cent that takes affect at the beginning of 2016.

Grifols, which had €3.35 billion, or about $3.9 billion, in sales last year, says that about 5 per cent of its revenue comes from Spain. The company declined to make an executive available to comment for this article.

The many multinational companies from the United States and elsewhere in Europe that have been drawn to Ireland for at least part of their operations include most of the world’s other big drug and medical device companies.

But many Spanish companies have been wary of the political optics of moving to a country whose corporate tax is half of that of Spain. Inditex, the clothing company more commonly known by its biggest brand, Zara, returned its online retail business to Spain from Ireland in 2012, after incurring harsh criticism from the Spanish public and politicians.

The details of Ireland’s 6.25 per cent “knowledge box” tax are yet to be published, so it is too early to gauge how it might benefit specific companies. Companies in the European Union are allowed to freely shift money and operations within the 28-nation bloc.

But Mr. Vinuesa, the lawyer, said the troublesome questions included how to tax intangible assets of the sort the new Irish rate would be meant to cover. Grifols said it did not expect to benefit from the new arrangement, because most of its patents come from manufacturing processes rather than lab research, and that it would keep its research and development activities centered in Barcelona.

Mr. Vinuesa is not so certain. “I’m pretty sure that the Spanish tax authorities will have a close look.” he said.

New York Times