Luxembourg's attractive company tax leaks tempt scandal

Luxembourg's attractive company tax leaks tempt scandal
By Euronews
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Despite all the makings of a global scandal Luxembourg is keeping its cool.

Nicolas Mackel, the top finance official for the rich tiny EU founding member state, said: “there is nothing unethical” going on.

This followed a report that more than 300 major companies secured secret deals from Luxembourg to slash their tax bills.

Apple was in the list. Last year it was found to have paid 3.7 percent tax on money made outside the US, using Irish companies.

According to the International Consortium of Investigative Journalists (ICIJ), the companies appear to have channelled hundreds of billions of euros through Luxembourg and saved billions of euros in taxes, based on a review of nearly 28,000 pages of leaked confidential documents — also known as comfort letters.

Luxembourg officials deny any “sweetheart deals” in its system, such as for, say, Amazon, the Internet-based American consumer goods giant. It declared revenues in Europe last year of 20 billion euros, and has had an agreement with the Grand Duchy since 2003 to channel some of that through at a rate of 5.3 percent.

Luxembourg denies practising tax favouritism.

Ikea, the Swedish ready-to-assemble furniture multinational, has long attracted admiration for designing its tax-paying architecture equally cleverly. It handles this in Luxembourg first, and also in the Netherlands, Belgium, Cyprus, havens in the Caribbean and Switzerland and Liechtenstein.

The intricacy of complex systems like this makes them difficult for tax authorities to figure out in the countries where multinationals do very substantial business.

The ICIJ report also named Pepsi as a top weaver of creative but legal tax-reduction systems.

The European Commission is probing whether these practices amount to illegal state aid under European Union rules.

Euronews reporter Olivier Péguy spoke to Anne Michel, one of the journalists at French newspaper Le Monde, who uncovered some of the tax evasion schemes.

Olivier Péguy, euronews:
In your investigation, you looked at the case of Ikea. How much do you estimate the company saved through its tax deals with Luxembourg?

Anne Michel, Le Monde:
It’s very difficult to estimate the amount that Ikea and the other multinationals that we investigated have saved on tax, because the tax deals are only a small part of the tax evasion package which has been set up.
Nonetheless, in one of the tax deals that we analysed, we can tell that a package has been put in place which allows dividends worth around 5 billion euros to be paid to an Ikea shareholder which turns out to be a foundation established in Lichtenstein which is also totally tax exempt.
We can estimate that the tax gains of just this one operation are around 730 million euros.

Which system is most often used by companies? Can you explain it?

Anne Michel:
In fact Luxembourg is a bit like a tax tool box. There are various tax avoidance packages that are all very advantageous, like first of all the holding societies, their status is completely tax exempt or all of the financial instruments / tradable assets which are not taxed at all.
In the end, the aim of all these systems is to get revenues transferred to Luxembourg which are organised in other countries to get a weak tax rate or even none at all.

Which well-know companies have used this system?

Anne Michel:
In fact it’s mainly American multinationals like Apple, Amazon, Pepsi and Heinz but also European multinationals as we have said like Ikea.
Regarding Ikea, what is very interesting – once again – is that we can tell, we can discover that the company has set up a tax evasion package which goes not only through Luxembourg but through a cluster of tax havens, the more exotic ones like Cyprus and Gibraltar.


Which are the countries allowing and carrying out these financial arrangements?

Anne Michel:
Luxembourg isn’t the only one offering these very advantageous deals for multinationals. In fact three other countries have these tax avoidance measures, notably Holland and Ireland and Switzerland as well. But Luxembourg, along with Holland, is the most reluctant to reform its tax set up, whereas Ireland and Switzerland have begun to reform their most controversial tax evasion schemes.

ICIJ: Luxembourg Leaks

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