Low Irish taxes boost Airbnb profits

  
Dublin, Ireland, European headquarters of Google, EBay and Airbnb. [Juan Salmoral/Flickr]

The peer-to-peer property renting website, artAirbnb, makes it possible for people in crisis-stricken states to earn extra money, but the company itself has placed its headquarters in places like Ireland, Jersey and Delaware to avoid paying tax. EurActiv France reports.

There is no doubt that Airbnb has made it possible for people in crisis-stricken countries to earn extra revenue. In Lisbon, one of Portugal’s main tourist hotspots, Beatrice who works in the cinema sector is a prime example.  “In the past few years. the job market has been extremely difficult in Portugal. Without renting part of my apartment, I wouldn’t make it financially. It is my only stable stream of income,” she said. Yet it is still borderline black market economy: Beatrice does not pay tax on her income, and Airbnb pays very little.

The website has democratised the rental market in big cities – like New York, its biggest market – and in countries that are struggling economically.

According to an Airbnb study carried out between August 2012 and July 2013, tourists using their service contributed over €128 million to the Barcelona economy and created 4,310 jobs.

Extra income

“By welcoming strangers into their homes, Airbnb helps thousands of families in Barcelona to generate extra income and keep their head above water during hard times,” said Jeroen Merchiers, Airbnb country manager for Spain and Portugal.

However the website that was started by three college graduates in 2008 is not always welcome in large European cities that have strained property markets. In Paris, for example, authorities tried to reduce peer-to-peer renting in order to solve the lack of rental housing in the French capital. An Airbnb user received a fine earlier this year for subletting a flat.

In late March 2014, the website announced that one million French holidaymakers used Airbnb since it launched in 2008, the same number as in the UK. In Spain, one million tourists used the website to rent property.

Fiscal optimisation or fiscal dumping?

The French Ministry of Finances has condemned this kind of revenue. “France has nothing to gain from developing this kind of renting… no sojourn tax, no VAT, non-taxed revenue and no provision for income tax,” a worker in the Ministry told EurActiv France.

Although peer-to-peer property renting is great for both parties involved, European authorities have found no way of benefitting from this new system. Airbnb has its headquarters in Dublin, Ireland, and therefore pays a low corporation tax in Ireland, not France.

Airbnb makes a profit by imposing a commission fee on both parties that use the website, but manages to avoid paying tax in many countries thanks to a complex fiscal model.

According to Jamal Henni from BFM Business, rent for temporary housing in France is not paid in France, and therefore is not taxable.

This means that the French Airbnb branch only earned €3.4 million in 2013, and paid just €100,000 to the French state. Its actual French revenue is estimated to be at €100 million.

Profit margins made on renting property in France (approximately 10%) are sent to Ireland, like all contracts outside the US. Ireland has the lowest corporate tax rate in Europe. Multinationals like Google and EBay settle there in order to avoid paying tax: a technic called the “double Irish arrangement.”

According to BFM, Airbnb set up two new branches in Jersey, and one in Ireland, in 2013, which gives it even greater fiscal optimisation possibilities for the future.

“We have not had a tax audit or any kind of tax redress in France. We are not breaking the law. We pay tax in countries where we operate,” an Airbnb spokesperson told the AFP.

Ireland-Jersey-Delaware, the fiscal Bermuda Triangle

In September 2013, Airbnb announced that its European headquarters would be in Dublin, the Irish capital, well known for its 12.5% corporation tax, which is much lower than its European counterparts, like France (33%).

The European Commission is trying to tackle tax dodging in different ways. DG Competition has opened an investigation into state-aid to companies that avoid tax. A revision to the Parent-Subsidiary Directive in June 2014 should also limit fiscal optimisation in the EU.

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