Luxembourg tax scandal: corporate tax avoidance on industrial scale – documents

Luxembourg taxA report by a group of investigative journalists has lifted the lid on widespread tax avoidance facilitated through Luxembourg. Some companies reportedly pay less than 1% of profits in tax. Luxembourg is known as a tax haven, but what is surprising is the industrial scale of tax avoidance. These aren’t dodgy Ponzi scheme salesmen that are getting their tax avoidance schemes rubber-stamped by the authorities; these are big household names, ranging from Ikea to PepsiCo., with little to no presence in the state. Thousands of companies are reportedly registered at one address. Meanwhile, global accounting firms are taking the lead on tax avoidance, with PricewaterhouseCoopers at the centre of current reports. President Barack Obama has accused corporates that duck tax bills of being unpatriotic, while UK Prime Minister David Cameron has been highly critical of multinationals that navigate their way around legal systems. – JC

By Patrick Donahue

Nov. 6 (Bloomberg) — German Finance Minister Wolfgang Schaeuble said Luxembourg has “a lot to do” to meet global tax standards as a report alleged that hundreds of companies use the duchy’s rules to minimize their tax burdens.

Addressing German lawmakers in Berlin, Schaeuble cited global efforts to combat tax avoidance by companies and an international accord on Oct. 29 for countries to automatically share income-tax data.

“Luxembourg is among the signatories from last week — there remains a lot to do if you read the newspaper, that’s true,” Schaeuble said in the lower house of parliament, or Bundestag, when a lawmaker demanded whether the country had signed on.

More than 340 companies have transferred profits to Luxembourg using complicated tax arrangements, according to leaked documents obtained by the International Consortium of Investigative Journalists. The report, which reviewed almost 28,000 documents and identifies companies such as PepsiCo Inc., Ikea Group and FedEx Corp., said some corporations effectively lowered their tax bill to less than 1 percent of profit.

The ICIJ project was also reported by news organizations including The Guardian, Sueddeutsche Zeitung and Le Monde.

Luxembourg’s Finance Ministry said it would issue a statement on the matter today.

EU Investigation

Luxembourg, the Netherlands and Ireland are the targets of a probe by the European Commission into whether preferential tax deals for companies amount to illegal state aid under European Union rules.

Jean-Claude Juncker, the former Luxembourg prime minister who took over as European Commission president on Nov. 1, said yesterday he “will not get involved” in the investigation.

“I will not stand in the way,” he said in Brussels yesterday. “That would be unacceptable.”

The Group of 20 wealthiest nations and the Organization for Economic Cooperation and Development have taken measures to dry out offshore tax havens and prevent global companies from gaining a tax advantage by exploiting cross-border loopholes, Schaeuble said.

“There’s not only illegal tax evasion, but also the establishment of legal frameworks,” Schaeuble said in his speech to lawmakers. “That’s our next step.”

Last week in Berlin, officials signed an agreement on automatic sharing of tax data that broadens efforts by the U.S. and the five biggest European Union economies to more than 50 countries and territories.

While seeking to uncover tax hideouts across the world, the OECD and partner countries are also working on data exchange to combat tax-avoidance strategies used by companies such as Google Inc., Apple Inc. and Yahoo! Inc. Multinational companies hold an estimated $2 trillion in low-tax jurisdictions, OECD Secretary- General Angel Gurria has said.

–With assistance from Stephanie Bodoni in Brussels.
To contact the reporter on this story: Patrick Donahue in Berlin at [email protected] To contact the editors responsible for this story: Alan Crawford at [email protected] Tony Czuczka, Leon Mangasarian

Copyright 2014 Bloomberg.

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Secret tax deals

Nov 5 (Reuters) – More than 300 companies, including PepsiCo Inc, AIG Inc and Deutsche Bank AG, secured secret deals from Luxembourg to slash their tax bills, the International Consortium of Investigative Journalists (ICIJ) reported, quoting leaked documents.

The companies appear to have channeled hundreds of billions of dollars through Luxembourg and saved billions of dollars in taxes, the group of investigative journalists said, based on a review of nearly 28,000 pages of confidential documents. (http://bit.ly/1zwPjbv)

The leaked documents reviewed by ICIJ journalists include hundreds of private tax rulings – known as comfort letters – that Luxembourg provides to corporations seeking favorable tax treatment.

Luxembourg officials denied any “sweetheart deals” in its tax system.

“The Luxembourg system of taxation is competitive – there is nothing unfair or unethical about it,” ICIJ quoted Nicolas Mackel, chief executive of Luxembourg for Finance, as saying in an interview.

Pepsi, AIG and Deutsche Bank were not immediately available for comment.

EU state aid regulators are investigating Amazon’s tax deals with Luxembourg, saying the arrangements could have underestimated the U.S. online retailer’s profits and given it an unfair advantage, Reuters reported in October. (Reporting By Neha Dimri in Bangalore; Editing by Rodney Joyce)