More than 300 global corporations and financial institutions—including well-known names like Pepsi Co., FedEx, JP Morgan Chase, and Amazon—have created complex tax avoidance schemes using the small European nation of Luxembourg to funnel billions of dollars of profits away from the countries where they actually do business, according to leaked documents obtained and analyzed by the International Consortium of Investigative Journalists.
Luxembourg’s tax environment is like a “magical fairyland” for global corporations trying to avoid paying taxing.
As part of their reporting, ICIJ and its international media partners released a large cache of Luxembourg tax rulings—called comfort letters—which document the deals given to these transnational corporations in exchange for funneling their global profits through the country. The reporting details how the accounting giant PricewaterhouseCoopers (PwC) was at the center of the deal-making, representing the corporate clients before the Luxembourg Ministry of Finance which governs the nation’s tax system.
According to the ICIJ’s extensive reporting:
The leaked documents reveal that U.S.- and U.K.-based companies were the most heavily represented, but these same kind of deals were also used by companies throughout Europe.
Tax havens like this are creating “a global race to the bottom, depleting the contributions of major corporations and leaving citizens to pick up the tab.”
SCROLL TO CONTINUE WITH CONTENT
Citing the example of FedEx, the U.S. private package-delivery company based in Memphis, the company “set up two Luxembourg affiliates to shuffle earnings from its Mexican, French and Brazilian operations to FedEx affiliates in Hong Kong. Profits moved from Mexico to Luxembourg largely as tax-free dividends. Luxembourg agreed to tax only one quarter of 1 percent of FedEx’s non-dividend income flowing through this arrangement – leaving the remaining 99.75 percent tax-free.”
Quoted by ICIJ, Stephen E. Shay, a professor of international taxation at Harvard Law School and a former tax official in the U.S. Treasury Department, responded to the revelations by saying that Luxembourg’s tax environment is like a “magical fairyland” for global corporations trying to avoid paying taxing. Creating structures like this, he said, “is a way of stripping income from whatever country it comes from” by offering “enormous flexibility to set up tax reduction schemes, along with binding tax rulings that are unique.”
And as Richard Brooks, author of The Great Tax Robbery, explains in an op-ed on the Guardian, tax havens like this are creating “a global race to the bottom, depleting the contributions of major corporations and leaving citizens to pick up the tab.”
According to Reuters:
What’s notable, according to the ICIJ, is that the documents reviewed are only a fraction of those processed by the finance ministry of Luxembourg and that most, if not all, of the companies involved use the nation as only one tool in their tax-avoidance arsenal.
Our work is licensed under a Creative Commons Attribution-Share Alike 3.0 License. Feel free to republish and share widely.