Tourists are strolling along the harbor promenade of Funchal, Madeira’s capital. What they do not know: Hundreds of companies are supposed to have their headquarters in the white office building right next to the boardwalk. Even subsidiaries of major corporations like Chevron or PepsiCo had been sharing the same room on the building’s sixth floor, together with dozens of others. And this is by far not the only address in Funchal’s city center where you can find a conspicuous accumulation of company head offices.

For years, multinationals, wealthy individuals and celebrities have been channeling billions of Euros of earnings to the Free Trade Zone of Madeira. We’ve discovered their names in the commercial register of the local authorities

A tax haven approved by the European Commission

It was back in 1987 when the European Commission approved the low tax regime in Madeira for the first time. Portugal had just joined the European Community, as it was called back then. With a corporate tax rate of zero percent, Portugal wanted to attract investors to the isolated island of Madeira. As these low taxes were only planned for companies registered at the International Business Center of Madeira, they were defined as state aid and therefore needed approval by the European Commission. The Commission allowed the scheme, but not without making the following remark:

[The Commission] recalls that this authorization does not in any way indicate the approval of an "offshore" financial center that the Autonomous Government of Madeira might want to establish in the Free Trade Zone.

– Letter from EU-commissioner P. Sutherland to the government of Portugal, 1987

There is no consistent definition for the word ”offshore“. You could call it a financial district with very low taxes and little control. Our investigation shows: Although all data is public in the official register of Madeira, it doesn’t mean that the system is transparent. Many companies don’t have a private person as holder but other companies, often registered in other tax havens like Panama, the British Virgin Islands or Luxemburg. So Madeira is another brick in many company structures that are mainly established to save taxes.

Musicians, football players, billionaires

Analyzing the official register we discovered many well known names that owned or own companies in Madeira and were or are therefore benefitting from zero or low taxes:

  • The Spanish football player Xabi Alonso (Bayern Munich) transferred his image rights to his company KARDZALI in Madeira. His former team Real Madrid, as well as advertising partners like Adidas Spain remitted hundreds of thousands of Euros to KARDZALI. Investigations by Spanish judicial authorities are ongoing.
  • Fellow footballer Javier Mascherano (FC Barcelona) was convicted of tax fraud in Spain in 2016. His Madeira company ANADYR OVERSEAS was central to the case.
  • Jérôme Valcke, former secretary general of FIFA, has been the owner of the company GALACTIC LEISURE in Madeira since April 2016, shortly after the Panama Papers revelations.
  • Bashir Saleh Bashir, who was an aide of the former Libyan dictator Muammar al-Gaddafi, was also the director of the Madeira company LAP OVERSEAS.
  • Isabel dos Santos, commonly referred to as the wealthiest woman of Africa and daughter of Angolan president José Eduardo dos Santos, is connected directly or indirectly to several Madeira holding companies. The German rock band Böhse Onkelz chanelled millions in revenues to their company CIBOULE - Trading e Marketing LDA”. They transferred their trademark rights to their Madeira company.

The rock band Böhse Onkelz as well as Xabi Alonso and Isabel dos Santos did not answer our questions about their Madeira companies. Jerôme Valcke answered to the French newspaper Le Monde, that we shared our investigations with.

Analysis of public data

On an almost daily basis, the regional Government of Madeira publishes the official register JORAM (Jornal Oficial da Região Autónoma da Madeira). All company filings, changes of company directors or addresses are published in the JORAM. Many editions of JORAM are only available as scanned documents and therefore not machine-readable without further work. German public broadcaster BR managed to download 20.000 pages and to develop a search engine even for older JORAM editions. Because of many international cases included in the data, BR provided access to the search engine to partner media outlets in France (Le Monde), Spain (La Vanguardia) and Austria (ORF).

Many companies in the Madeira Free Trade Zone have fantasy names, where it is hard to distinguish the corporations or individuals behind them. “This is what you do to disguise the identity of the real owners”, Thomas Eigenthaler, who is the chairman of the German Tax Union, told us. The subsidiary of PepsiCo, for example, was called MALPENSA. Chevron’s subsidy changed its name from FEINGOLD to LIVERMORE. Other companies are simply serially numbered: We found 59 companies with the name TAGGIA – followed by a Roman numeral. Other company networks are using the names of extinct finfishes or of cities in Eastern Europe and Russia.

Billions of tax exemptions, almost no jobs

In 2000, the European Commission noticed that things are not going well in Madeira: On the one hand, the amount of aid granted in the form of tax exemptions exceeded the theshold of one billion Euros per year. On the other hand, the 4000 companies in the Madeira Free Trade Zone had employed not more than 1000 people: “(…) it can hardly be claimed that the aid is justified in terms of its contribution to regional development or that its level is proportional to the handicaps it seeks to alleviate”, the Commission wrote in a press statement.

The Commission then launched an investigation into the tax scheme of the Madeira Free Trade Zone, to see if it conforms with the European rules for state aid. But two years later, the investigation was closed without any result. Since that time the EU-Commission keeps on approving the tax scheme, e.g. in 2002, 2007, 2013, 2014 and 2015. The only change: Companies nowadays have to pay 5 percent business tax and – in order to benefit from the preferential tax rate – create a certain number of new jobs, depending on their profits.

View over Funchal

Most companies of the International Business Centre are located in the centre of Funchal. (Picture: BR)

One person counts as multiple jobs

We had the opportunity to talk to an insider. We met him in a bright office in Funchal for an off-the-record conversation. The insider is working for a consulting firm that not only incorporates companies for its international clients, but also provides a registered office and the required staff. The insider explained how easy it is to fulfill the requirements concerning job creation: One individual person could be hired by several of those tax-saving companies. As long as the person gets a salary from each company, every single occupation counts as a new job. Even a director who represents many of those companies at the same time could stand for multiple jobs as long as he is paid by every company.

The head of the Madeira tax authority, João Machado, stressed out that these cases are, in his opinion, exceptional:

I admit that one director could be working in more than one company. I believe that can happen. But normally, in the most of the situations, they are working each one at each company. At least this is what I expect.

– João Machado, Autoridade Tributária e Assuntos Fiscais da RAM

Just exceptional cases? We evaluated the data from the Madeira company register and found out that some directors are registered for dozens or even hundreds of companies. One single man was even named as director of more than 300 companies during the last ten years. With this background knowledge, the official numbers seem questionable. In 2014, 1868 companies officially had 2721 workplaces in Madeira. But if one individual can be employed by multiple companies at the same time, and each employment counts as an extra workplace, the number of employed persons who really benefit from the tax regime in Madeira probably is a lot lower than 2721.

Hundreds of companies share one adress

In the official data, we also found out that many companies are sharing the same few addresses. In some cases, we even figured out offices that are used by hundreds of companies.

Addresses in Funchal with 30+ company headquarters during the past 5 years:

Map of registered companies 2012-2016

During the past 5 years, almost 800 incorporations were registered at the office building on Avenida Arriaga 73-77. There are seven other addresses with more than 100 registered corporations in the center of Funchal.

When you find hundreds of companies registered at one single address, and there is only one door bell, it is a typical sign for a letterbox scheme, which we also know from other tax havens.

– Thomas Eigenthaler, chairman of the German Tax Union

Promoting the EU approved “tax paradise”

There is a whole industry of consulting firms that helps setting up corporations in various tax havens. If you search the web, you find websites that not only promote well known low tax regimes like Cyprus, Malta or Panama, but also Madeira, the „tax paradise in the European Union“ which is “approved by the EU commission”. The service of this kind of consultants even includes the provision of the required number of employees. Already on their websites, they advertise how cheap it is to hire staff in Madeira: We find the information that one employee costs from 230 to 412 Euros per month. And to those potential clients that worry that their Madeira personal could not live from that low salary, one service provider assures: “We would like to point out that if Tax Saving Corporation provides staff, they will receive the wage in addition to a regular and appropriate salary.”

Anonymous mailboxes

Over the last five years, more than 300 companies had been registered here. (Picture: BR)

A race to the bottom

Our analysis further shows that the low tax policy is not sustainable. Until the year 2011, some well-known multinationals had subsidiaries in Madeira: US oil giant Chevron as well as its Italian competitor ENI are listed in the documents, next to beverage manufacturer PepsiCo, Russian aluminium company Rusal and Swiss watchmaker Swatch.

However, when the tax rate started to increase from zero to 5 percent, beginning in 2011, many corporations left Madeira – some of them probably to jurisdictions with even lower taxes. Nevertheless, Madeira still seems to be an attractive destination, e.g. for rich individuals: It was only in 2016 when a former secretary general of FIFA registered his company in Madeira as well as a former manager of the German discount supermarket chain Lidl.

Promoting the EU approved “tax paradise”

From 2010 to 2015, companies registered in the Madeira Free Trade Zone received tax benefits amounting to more than two and a half billion Euros. Other states, including other EU member states, lost even more revenue because of the Madeira tax regime approved by the European Commission. Still, after we confronted the Commission with our findings concerning job creation, the spokesperson defended the Madeira scheme:

What I can say at this stage is that the commission does not have any indications that the scheme is not complying with the block exemption regulation that it is meant to comply with.

– Ricardo Cardoso, Spokesperson of the European Commission

Pressure on the Commission to rethink its approach towards Madeira comes from members of the European Parliament. Markus Ferber from Germany and Ana Gomes from Portugal, who are both part of the European Parliament’s Panama Papers committee, share the opinion that the case of Madeira weakens Europe’s stance in its fight against international tax havens.

A fair competition in Europe can only work if these swamps are drained. In the end, we are all suffering from it. The German Treasury loses money because of Madeira, as well as other Member States.

– Markus Ferber (CSU), Member of the European Parliament

You cannot accept it in your own territory and condemn it outside. We actually need to tackle it at the European level, and then, by tackling it at the European level, we will tackle it at the global level.

– Ana Gomes (PS), Member of the European Parliament

Together with representatives from other countries, e.g. Austria and France they want to put the Madeira tax haven on the agenda of the committee of inquiry. However, the EU Commission has already approved the Madeira Free Trade Zone for the next ten years, until the year 2027.