Leslie Wayne, Kelly Carr, Marina Walker Guevara, Mar Cabra and Michael Hudson, Leaked Documents Expose Global Companies’ Secret Tax Deals in Luxembourg. International Consortium of Investigative Journalists. 5 November 2014. “Pepsi, IKEA, FedEx and 340 other international companies have secured secret deals from Luxembourg, allowing many of them to slash their global tax bills while maintaining little presence in the tiny European duchy, leaked documents show.” Winner of the 2014 George Polk Award for Business Reporting.
These companies appear to have channeled hundreds of billions of dollars through Luxembourg and saved billions of dollars in taxes, according to a review of nearly 28,000 pages of confidential documents conducted by the International Consortium of Investigative Journalists and a team of more than 80 journalists from 26 countries.
Big companies can book big tax savings by creating complicated accounting and legal structures that move profits to low-tax Luxembourg from higher-tax countries where they’re headquartered or do lots of business. In some instances, the leaked records indicate, companies have enjoyed effective tax rates of less than 1 percent on the profits they’ve shuffled into Luxembourg.
The leaked documents reviewed by ICIJ journalists include hundreds of private tax rulings – sometimes known as “comfort letters” – that Luxembourg provides to corporations seeking favorable tax treatment.
The European Union and Luxembourg have been fighting for months over Luxembourg’s reluctance to turn over information about its tax rulings to the EU, which is investigating whether the country’s tax deals with Amazon and Fiat Finance violate European law. Luxembourg officials have supplied some information to the EU but have refused, EU officials say, to provide a larger set of documents relating to its tax rulings.
Today [5 November 2014] ICIJ and its media partners are releasing a large cache of Luxembourg tax rulings – 548 comfort letters issued from 2002 to 2010 – and reporting on their contents in stories that will be published or broadcast in dozens of countries. It’s unclear whether any of these documents are among those still being sought by EU investigators, but they are the kinds of documents that go to the heart of the EU’s investigation into Luxembourg’s tax rulings.
The leaked documents reviewed by ICIJ involve deals negotiated by PricewaterhouseCoopers, one of the world’s largest accounting firms, on behalf of hundreds of corporate clients. To qualify the companies for tax relief, the records show, PwC tax advisers helped come up with financial strategies that feature loans among sister companies and other moves designed to shift profits from one part of a corporation to another to reduce or eliminate taxable income….
The private deals are legal in Luxembourg but may be subject to legal challenge outside the country if tax officials in other nations view them as improper….
ICIJ and its media partners used corporate balance sheets, regulatory filings and court records to put the leaked tax rulings in context. News organizations that have worked together on the six-month investigation include The Guardian, Süddeutsche Zeitung and NDR/WDR in Germany, the Canadian Broadcasting Corporation, Le Monde, Japan’s Asahi Shimbun, CNBC, Denmark’s Politiken, Brazil’s Folha de S. Paulo and others….
Experts who’ve reviewed the files for ICIJ say the documents do make it clear…that the companies and their advisors at PwC engaged in aggressive tax-reduction strategies, using Luxembourg in combination with other tax havens such as Gibraltar, Delaware and Ireland….
More than 170 of the Fortune 500 companies have a Luxembourg branch, according to Citizens for Tax Justice, a nonprofit research and advocacy group. A total of $95 billion in profits from American corporations’ overseas operations flowed through Luxembourg in 2012, the most current statistics from the U.S. Bureau of Economic Analysis show. On those profits, corporations paid $1.04 billion in taxes to Luxembourg – just 1.1 percent.
Other tax havens, Ireland for example, openly advertise rock-bottom corporate tax rates of 12.5 percent. Luxembourg instead maintains a statutory tax rate of 29 percent, but the leaked files show that the duchy has routinely approved tax rulings that whittle down what counts as taxable income to practically nothing. This can drop Luxembourg’s effective tax rate deep into single digits….
In a 2009 presentation, PwC highlights Luxembourg as a place with “flexible and welcoming authorities” who are “easily contactable” and offer a “readiness for dialogue and quick decision-making process.”…
As in many tax havens, a Luxembourg office can be just a mailbox. Office buildings throughout the city are filled with brand-name corporate nameplates and little else. Some have offices and no visible employees. One building at 5 Rue Guillaume Kroll is home to more than 1,600 companies; another at 2 Avenue Charles de Gaulle houses roughly 1,450; and a building at 46A Avenue J.F. Kennedy is home to at least 1,300, according to an ICIJ analysis of Luxembourg’s corporate registry.
These companies can represent big bucks. From the U.S. alone, direct investment into Luxembourg in 2013 was $416 billion, according to the U.S. Bureau of Economic Analysis. Of that, the vast majority, $343 billion, was in the form of holding companies, which are vehicles to hold securities and financial assets rather than to create local jobs. In fact, Luxembourg represents a tiny fraction of 1 percent – 0.13 percent in 2010 – of all overseas jobs with American companies, indicating it is a place that houses money more than it provides employment….
Many observers are skeptical Luxembourg and its allies will give up the country’s flexible tax regime without a battle.
Jürgen Kentenich, chief tax fraud investigator in the German city of Trier, which lies near the border with Luxembourg, worries that big companies and their accountants will keep finding ways to take advantage of the deals offered by Luxembourg and other financial havens, while smaller companies and average taxpayers are left to make up the what’s lost in tax revenues.
“It’s always the same story,” he said in an interview with ICIJ’s partner, the Canadian Broadcasting Corporation. Accounting firms are always coming up with fresh ways to cut tax bills “and lawmakers and tax authorities are always behind, always chasing.”…
A separate set of documents reported on by ICIJ on Dec. 9 expanded the list of companies seeking tax rulings from Luxembourg to include American entertainment icon The Walt Disney Co., politically controversial Koch industries and 33 other firms. The new files revealed that alongside PwC tax rulings were also brokered by Ernst & Young, Deloitte and KPMG, among other accounting firms.
Rick Edmonds, Meet ICIJ–The biggest, toughest investigative unit you man never have heard of. Poynter, 24 February 2015.