The International Consortium of Investigative Journalists (ICIJ) has published leaked documents setting out tax deals that some of the world’s largest multinational corporations struck with Luxembourg.
The International Consortium of Investigative Journalists (ICIJ) has published leaked documents setting out tax deals that some of the world’s largest multinational corporations struck with Luxembourg. More than 300 multinationals are said to have benefited from the tax breaks issued by the Grand Duchy, including well-known names such as Shire, ICAP, Dyson, Pepsi, Ikea, Accenture, Burberry, Procter & Gamble, Heinz, JP Morgan and FedEx. The Guardian reported that ‘28,000 pages of leaked tax agreements, returns and other sensitive papers relating to over 1,000 businesses paints a damning picture of an EU state which is quietly rubber-stamping tax avoidance on an industrial scale’, while PAC chair Margaret Hodge demanded that current EC president and former Luxembourg finance minister Jean-Claude Juncker – who declared on Wednesday that the EC ‘will fight tax evasion and tax avoidance’ – should ‘explain himself’. ‘It seems inconceivable that he did not know about these tax schemes and it is outrageous that he is now representing the EU at the G20 on tax evasion’, Hodge said.
Most of the leaked documents concerned clients of PwC, which the ICIJ said had assisted multinationals in obtaining at least 548 rulings in Luxembourg from 2002 to 2010. As the FT reported, many of the documents were advance tax agreements or ‘letters of comfort’ which set out the way businesses were to be taxed. Some documents indicated companies were levied effective tax rates of less than 1% on profits moved into Luxembourg, while others revealed arrangements such as low-tax Swiss branches, ‘hybrid’ financial instruments and ‘hidden capital contributions’, as well as ‘sprawling structures’ involving companies and branches in countries such as the Netherlands, which allows companies to arbitrage the difference between countries’ tax rules.
Law firm Pinsent Masons noted that these rulings are frequently used in the context of transfer pricing arrangements, and that the small proportion of these rulings which included figures for the profits that companies planned to transfer to Luxembourg accounted for more than $215bn in loans and investments – but that some of the letters would have issued for reasons other than avoidance. Partner Heather Self said: ‘Tax planning via Luxembourg has been the norm for years, and almost every major group will have used a Luxembourg finance ruling as part of its overall structure. The fact that it was common will not, however, be a defence to a state aid enquiry, and companies face having to repay ten years of tax benefits in a worst case outcome.’
Following the reports, EU competition commissioner Margrethe Vestager issued a statement on possible further tax state aid investigations. ‘Tax rulings as such are common practice in member states,’ she stated. ‘However, if in a tax ruling, the tax authorities of a member state accept that a tax base of a specific company is calculated in a favourable way which does not correspond to market conditions, it may give to the company a more favourable treatment than what other companies would normally get under the country's tax rules, and this could constitute state aid.
‘The Commission is already looking at member states’ tax rulings practice that could favour some companies: the Commission has recently opened formal investigation procedures on this area in Ireland, the Netherlands and Luxembourg and has sent information requests to other member states. For Luxembourg, the two on-going investigations concern the tax rulings of Amazon and Fiat Finance & Trade (FFT). I cannot comment on on-going investigation cases as we cannot prejudge the outcome of the investigations.
‘The Commission is in close cooperation with the Luxembourg authorities to proceed in a constructive and cooperative manner in this area,’ the statement concluded. ‘We have not seen all the information published yesterday, and we have at this stage not yet formed an opinion about these rulings and a possible formal follow-up by the Commission. On a more general note, my services have asked information from Luxembourg and from other countries and we will be vigilant to enforce state aid control in fair and justified manner.’
The International Consortium of Investigative Journalists (ICIJ) has published leaked documents setting out tax deals that some of the world’s largest multinational corporations struck with Luxembourg.
The International Consortium of Investigative Journalists (ICIJ) has published leaked documents setting out tax deals that some of the world’s largest multinational corporations struck with Luxembourg. More than 300 multinationals are said to have benefited from the tax breaks issued by the Grand Duchy, including well-known names such as Shire, ICAP, Dyson, Pepsi, Ikea, Accenture, Burberry, Procter & Gamble, Heinz, JP Morgan and FedEx. The Guardian reported that ‘28,000 pages of leaked tax agreements, returns and other sensitive papers relating to over 1,000 businesses paints a damning picture of an EU state which is quietly rubber-stamping tax avoidance on an industrial scale’, while PAC chair Margaret Hodge demanded that current EC president and former Luxembourg finance minister Jean-Claude Juncker – who declared on Wednesday that the EC ‘will fight tax evasion and tax avoidance’ – should ‘explain himself’. ‘It seems inconceivable that he did not know about these tax schemes and it is outrageous that he is now representing the EU at the G20 on tax evasion’, Hodge said.
Most of the leaked documents concerned clients of PwC, which the ICIJ said had assisted multinationals in obtaining at least 548 rulings in Luxembourg from 2002 to 2010. As the FT reported, many of the documents were advance tax agreements or ‘letters of comfort’ which set out the way businesses were to be taxed. Some documents indicated companies were levied effective tax rates of less than 1% on profits moved into Luxembourg, while others revealed arrangements such as low-tax Swiss branches, ‘hybrid’ financial instruments and ‘hidden capital contributions’, as well as ‘sprawling structures’ involving companies and branches in countries such as the Netherlands, which allows companies to arbitrage the difference between countries’ tax rules.
Law firm Pinsent Masons noted that these rulings are frequently used in the context of transfer pricing arrangements, and that the small proportion of these rulings which included figures for the profits that companies planned to transfer to Luxembourg accounted for more than $215bn in loans and investments – but that some of the letters would have issued for reasons other than avoidance. Partner Heather Self said: ‘Tax planning via Luxembourg has been the norm for years, and almost every major group will have used a Luxembourg finance ruling as part of its overall structure. The fact that it was common will not, however, be a defence to a state aid enquiry, and companies face having to repay ten years of tax benefits in a worst case outcome.’
Following the reports, EU competition commissioner Margrethe Vestager issued a statement on possible further tax state aid investigations. ‘Tax rulings as such are common practice in member states,’ she stated. ‘However, if in a tax ruling, the tax authorities of a member state accept that a tax base of a specific company is calculated in a favourable way which does not correspond to market conditions, it may give to the company a more favourable treatment than what other companies would normally get under the country's tax rules, and this could constitute state aid.
‘The Commission is already looking at member states’ tax rulings practice that could favour some companies: the Commission has recently opened formal investigation procedures on this area in Ireland, the Netherlands and Luxembourg and has sent information requests to other member states. For Luxembourg, the two on-going investigations concern the tax rulings of Amazon and Fiat Finance & Trade (FFT). I cannot comment on on-going investigation cases as we cannot prejudge the outcome of the investigations.
‘The Commission is in close cooperation with the Luxembourg authorities to proceed in a constructive and cooperative manner in this area,’ the statement concluded. ‘We have not seen all the information published yesterday, and we have at this stage not yet formed an opinion about these rulings and a possible formal follow-up by the Commission. On a more general note, my services have asked information from Luxembourg and from other countries and we will be vigilant to enforce state aid control in fair and justified manner.’
