Luxembourg: Magical Fairyland of Corporate Tax
HandelontheLaw.com Staff Writer
The International Consortium of Investigative Journalists (ICIJ), a worldwide network of 180+ reporters in 60+ countries released a report in early November 2014 indicating that corporations comprising a Who’s Who of the Fortune 500 have obtained tax deals from Luxembourg allowing them to pay a miniscule percentage of corporate taxes.
FedEx, Amazon, Ikea, Procter & Gamble, the Pepsi Bottling Group, H. J. Heinz, JP Morgan Chase, American International Group (AIG), Blackstone, Coach, Burberry and Abu Dhabi Investment Authority are a small number of the hundreds of manufacturing, pharmaceutical, banking, private equity, real estate and other companies receiving Luxembourg’s favorable treatment. U. S. corporations reportedly made $95 billion in 2012 profits from overseas operations, move them through Luxembourg and paid $1.04 billion (1.1%) in taxes to Luxembourg. Knowing a good thing when they see it, U. S. – based companies alone funneled $416 billion into Luxembourg in 2013 and the Luxembourg arrangements allowed some of them to pay as little as 1% or lower in taxes.
The report is based on approximately 28,000 pages of leaked documents referring to deals brokered by PricewaterhouseCoopers, one of the largest accounting firms in the world, in behalf of 340+ international companies for hundreds of billions of dollars. The leaked documents reportedly covered deals from 2002 – 2010, though most were approved from 2008 – 2010. The leaked pages refer only to deals arranged by PricewaterhouseCoopers, so the true number of corporations receiving Luxembourg’s favorable treatment is unknown.
Luxembourg, a 998 square mile European duchy with a population of fewer than 600,000, has parlayed its penchant for preferable corporate tax treatment into a booming economy with $112,000+ economic output per capita in 2013, the highest in the world and more than twice the U. S. economic output of $53,000 during the same year.
According to the leaked documents, PricewaterhouseCoopers prepared and presented tax plans for its corporate clients to Luxembourg. The plans often involved complex schemes in which great sums of money were transferred through several countries and between a corporation’s subsidiaries, sister companies and other “arms” to strip the income of most taxation burdens. Luxembourg, represented by a tax official named Marius Kohl, approved many of the plans on the same day they were represented and signed favorable tax rulings known as “comfort letters.” Kohl personally approved thousands of the tax agreements, signing as many as 39 per day.
What’s the problem with avoiding corporate taxes? The burden normally borne by those taxes is shifted to citizens, companies and nations who do not receive that favorable tax treatment.
The arrangements are now being investigated by the European Union and other nations affected by the loss of income. Meanwhile, any participant –Luxembourg, PricewaterhouseCoopers, etc., maintain that the arrangements are perfectly legal.
ICIJ’s report can be accessed here: http://www.icij.org/project/luxembourg-leaks/leaked-documents-expose-global-companies-secret-tax-deals-Luxembourg
By Kathy Catanzarite
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