Journalists publish leaked advance rulings and tax returns, conclude that Luxembourg aids tax avoidance

The International Consortium of Investigative Journalists (ICIJ) on November 5 published confidential tax documents of PwC clients on the Internet accompanied by a series of news stories that conclude that Luxembourg has been a long-time partner in multinational corporation tax avoidance.

The leaked documents include 548 Luxembourg advance rulings, or comfort letters; corporate tax returns of Luxembourg-based subsidiaries of MNEs; and other sensitive documents.

A group of  80 ICIJ reporters analyzed the leaked documents for the project, which lasted six  months. The ICIJ lists its major findings, as follows:

• Pepsi, IKEA, AIG, Coach, Deutsche Bank, Abbott Laboratories and nearly 340 other companies have secured secret deals from Luxembourg that allowed many of them to slash their global tax bills.

• PricewaterhouseCoopers has helped multinational companies obtain at least 548 tax rulings in Luxembourg from 2002 to 2010. These legal secret deals feature complex financial structures designed to create drastic tax reductions. The rulings provide written assurance that companies’ tax-saving plans will be viewed favorably by Luxembourg authorities.

• Companies have channeled hundreds of billions of dollars through Luxembourg and saved billions of dollars in taxes. Some firms have enjoyed effective tax rates of less than 1 percent on the profits they’ve shuffled into Luxembourg.

• Many of the tax deals exploited international tax mismatches that allowed companies to avoid taxes both in Luxembourg and elsewhere through the use of so-called hybrid loans.

• In many cases Luxembourg subsidiaries handling hundreds of millions of dollars in business maintain little presence and conduct little economic activity in Luxembourg. One popular address – 5, rue Guillaume Kroll – is home to more than 1,600 companies.

ICIJ journalists also published articles that go into greater depth about the findings in major newspapers, including The Guardian, the Irish Times,  CBC News, and Le Monde.

The “Luxembourg Leaks” are a huge blow to the credibility the European Commission’s new president, Jean-Claude Juncker, who was Luxembourg’s Prime Minister when many of the tax deals were struck.

See:

• ICIJ database of leaked documents 

• ICIJ release -Leaked files bring 80 reporters together for new ICIJ project

• The Guardian – Luxembourg tax files: how tiny state rubber-stamped tax avoidance on an industrial scale

• Irish Times –Exposed: Ikea, Pepsi amongst 340 companies with secret Luxembourg tax deals

• CBC News – Federal pension board used offshore ‘scheme’ to skirt foreign taxes

• Folha de S.Paulo – Itaú and Bradesco Cut Secret Deal with Luxembourg to Save US$90.2 Million in Tax in Brazil 

• Financial Review – International PwC tax schemes exposed

• Wall Street Journal- Luxembourg Tax Leak Puts EU’s Juncker Under Further Pressure

• Bloomberg – Ireland Gets Lucky With Luxembourg’s Tax Scandal

See also:

• Statement by European Commissioner for Competition Margrethe Vestager on tax state aid investigations

•  PwC statement

• Irish Times – OECD says Luxleaks revelations not surprising

Related MNE Tax articles:

• Private tax rulings granted by Luxembourg to Amazon under EU scrutiny

• EU probes whether tax rulings granted to Apple in Ireland, Starbucks in Netherlands, and Fiat in Luxembourg violate state aid

• EU releases details of state aid probe into rulings granted by Ireland to Apple and by Luxembourg to Fiat

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Luxembourg defends tax rulings: “The rulings in Luxembourg are compatible with the Luxembourg legislation, compatible with the EU-legislation, and compatible with the OECD-conventions, and any other international conventions,” Minister of Finance, Pierre Gramegna, said November 6, at the Ecofin council in Brussels. See speech.

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Jean-Claude Juncker should resign says Bloomberg: Jean-Claude Juncker, the new president of the European Commission, has a “clear conflict of interest” as head of the body investigating the tax practices he oversaw as Luxembourg’s prime minister, says Bloomberg in a November 9 opinion piece. See, Bloomberg.