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Economy & Trade

Giant Companies Pinpricked by ‘Direct Democracy’

ZUG, Switzerland, Oct 15 2013 (IPS) - A Swiss village has decided to reject tax money from the firm Glencore and to instead donate it to charities. Other towns may follow, sending a strong signal to the government to follow the U.S. and the EU and introduce transparency rules for the extractive industry.

It’s rush hour in the city of Zug in Central Switzerland as Mrs Sandra Räppli struggles to raise her voice over the traffic noise. About 35 people listen as she lectures about commodity extraction and trading companies based in the city and the neighbouring town of Baar.

Räppli talks about complex company structures and tax optimisation, finally asking the audience: “Could you follow my explanations? Did you understand?” Then she smiles: “You couldn’t? No problem, because that is what those companies intend.”

“Even as a member of parliament I can't be sure that things are handled correctly if the government on any occasion hides behind the tax secret.”

Once a month, actress Maria Greco slips into the role of Sandra Räppli and guides groups of inhabitants and visitors through the streets of Zug. The canton counts 116,000 inhabitants and more than 30,000 companies, 105 of which belong to the commodity cluster formed by GlencoreXstrata, Northstream, Rusal and Gazprom, to name just a few.

Privileged taxation for holding, domicile and mixed companies brought these firms here. Holding companies are exempt from cantonal income tax, and pay almost no capital tax. Incomes of management companies generated abroad are hardly taxed, too.

Critics say Zug’s tax environment is an invitation to ‘transfer pricing’, a method to allocate a corporation’s net profit before taxation; in other words a means for tax evasion. Despite sales of 214.44 billion dollars in 2012, Glencore paid no tax on earnings at all in the canton of Zug last year.

The commodity cluster as a whole is estimated to have paid only 40 million dollars in cantonal and communal taxes.

Under official secrecy rules, exact taxes paid by Glencore and other companies are not available. Statistics on the number of companies or their employees is also lacking, even at the national level.

“That  lack of transparency is a major problem,” says Andreas Hürlimann, a parliamentarian with the Green-Alternative party in Zug. “Even as a member of parliament I can’t be sure that things are handled correctly if the government on any occasion hides behind the tax secret.”

Hürlimann finds Zug’s tax regulation deeply unfair. “It makes us rich, while people in extraction countries suffer, as the companies evade taxation there.” He says that Zug bears at least some moral responsibility.

At the end of her tour, Sandra Räppli stops in front of Zug’s town hall. “Our politicians are hand in glove with Glencore’s managers,” she tells her audience. “Only if people get active can something be done about these companies.”

Räppli has just ended her second season of city tours. She’s happy that the attendance has remained high – by Swiss standards. Media reports and a campaign run by the Swiss non-governmental organisation Berne Declaration have clearly increased popular interest in the commodity sector.

In the nearby canton of Zurich, these efforts have yielded fruits. Several villages are up in arms against Glencore. The corporation’s flotation on the stock market in 2011 had filled the pockets of CEO Ivan Glasenberg, leading to a huge one-time tax inflow for the canton. That money was redistributed to the communes.

But in several communes, residents were appalled by profiting indirectly from what they call “Glencore’s dubious business conduct abroad.” They collected signatures and demanded that at least 10 percent of the “Glencore money” be donated to charities who support affected communities in extraction regions.

In Hedingen, a village of 3,500, voters approved the donation of 120,000 dollars to charities. Samuel Schweizer, a member of the local citizens’ committee, explained that success to IPS: “Our proximity to Zug was crucial, people could relate to Glencore. Also, we’ve managed to build a broad committee.”

Schweizer explained that donating only 10 percent of the “Glencore money” instead of the whole amount further helped to find a majority.

At least five more communes will soon decide upon similar initiatives. In Affoltern for example, 180,000 dollars are at stake. In Hausen, it’s 80,000 dollars.

There, Franz Schüle of the local initiative committee is optimistic. “We live in a rural area. When I explain that in Colombia the surface of the land belongs to the farmers, while everything below can be owned by extraction companies, people can relate to the problem easily.”

“Direct democracy has hit Glencore,” says Oliver Classen, spokesperson of the Berne Declaration. He’s aware that these communal initiatives are only a drop in the ocean and a one-time effort. “However, Hedingen has a huge political signalling effect,” Classen tells IPS.

This summer, the European parliament introduced the Transparency and Accounting Directives that force mining, oil and gas companies to publish their payments to governments; country by country and project by project. The Swiss government has remained hesitant so far and will present its own measures next spring.

Oliver Classen demands transparency on payments and human rights obligations for commodities companies producing or trading abroad.

GlencoreXstrata neither commented on the tax initiatives nor responded to accusations ranging from tax avoidance to violating basic human rights in extraction countries. Its spokesperson Charles Watenpuhl sent IPS a statement.

“We believe that Glencore’s global presence and economic strength have a predominantly positive impact on the communities in which we operate. We seek out, undertake and contribute to activities and programmes designed to improve quality of life for the people in these communities.

“Glencore’s tax strategy and payments play a vital role in our intention to achieve long-term sustainable development. We are committed to full compliance with all statutory obligations, full disclosure to tax authorities and reporting transparently in the tax payments that we make to the governments of the countries in which we operate.”

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