Big all inclusive tour and cruise operators under tax spotlight

Taxation blog alleges that local benefits from tourism are nowhere near as rosy as they seem

From the perspective of the holiday host countries, sun, sand and sea tourism are traditionally considered as a way to generate economic growth.  Writes Dr Linda M. Ambrosie in Tax Justice Network

Local government officials tout vacuous GDP growth figures, while hospitality companies make inflated claims of employment, to garner federal funding for infrastructure expansion, she claims

"But infrastructure is just one of the motivations for these powerful and vast corporations to invest. Ostenstibly, tourist satisfaction drives resort selection. But visibly, much investment is driven by windfall profits and "tax-loss carry-forwards", thanks to legislated tax loopholes and willing local officials who either ignore or aid in the violation of tax, environmental and employment regulations.

She claims that of the €5.3 billion that TUI had accumulated as of 2012, it only expects to deduct €217 m, less than five percent. Thomas Cook will deduct five percent of its losses; Spain’s Barceló 12 percent; Melia 14 percent; and NH 32 percent. These loss carryforwards are so large that even if these webs of companies began paying their fair share today, they would pay no taxes until 2020 and beyond.

Moreover – the use of tax havens is rife – while losses are declared at head offices in Spain and Germany, the surplus cash generated by tax credits is then re-invested in new or expanded hotel properties at the same destinations such as Mexico’s Cancún and Riviera Maya as foreign direct investment (FDI) – channeled through tax havens rather than directly from Spain.

Dr Ambrosie claims that… more than 80% of the hotel rooms in the Mexican Caribbean are All-Inclusive and 80% of the owners of these are Spanish groups. Yet the FDI patterns don’t reflect this at all: investment levels from Spain are the same as the national average for all of Mexico for all types of investment – while the countries with above-average investment levels were Panama, Switzerland, the Netherlands and the British Virgin Islands: all well-known tax havens.

Thanks to schemes such as the Dutch Sandwich, only an estimated 20% of the package price arrives at the destination which deprives the host destinations of resources to ensure sustainability. Yet these same tourism corporations signed an accord in London, UK promising "a shared vision of a sustainable outbound tourism industry … working in partnership with governments and communities in tourist destinations"

To do so, the original signatories such UK’s TUI Plc, Thomas Cook and Carnival committed to a   "clear vision of a profitable, successful future in which the travel and tourism industry recognises its wider responsibilities to society" (Forum for the Future, 2009).

How can countries ensure tourism infrastructure and security without taxes?

Dr Linda M. Ambrosie says "So the next time you go on vacation paid for from your declining real wages and are encouraged to stay within the hotel boundaries or take only hotel-sponsored tours due to possible safety issues, ask yourself about the hotel’s motivation and who is the culprit if local people do NOT see the benefits of your tourism dollars at work?"

Read the full blog HERE

More information: Ambrosie, L. M. (2015). Sun & Sea Tourism: Fantasy and Finance of the All-Inclusive Industry. Cambridge, UK: Cambridge Scholars Publishing, pp. 290.

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