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6 Nov 2014 01:03pm

Scale of Luxembourg tax avoidance revealed

A joint investigation by the Guardian and the International Consortium of Investigative Journalists (ICIJ), has leaked documents detailing Luxembourg’s rubber stamping of avoidance schemes

A leak of almost 28,000 papers shows how more than 1,000 businesses had tax avoidance schemes approved by the government in Luxembourg, many with paperwork prepared by Big Four firm PwC.

Some 340 companies from around the world – including Pepsi, Ikea, JP Morgan, and Fedex – are also shown to have arranged boutique tax agreements with Luxembourg tax officials, with unique deals designed for each business.

Complex agreements were arranged in which company headquarters from across the globe would set up local subsidiary companies alongside branches of domestic HQs in Luxembourg.

These would use minimal staffing operations, but allow interest to pass between the primary company and local subsidiary unnoticed.

Once in the Luxembourg HQ branch, the sums of money could be filtered back into the business without the knowledge of domestic tax authorities.

ActionAid, a charity that campaigns against global poverty, called for the international community to clamp down on tax avoidance, adding that Luxembourg’s behaviour was a scandal.

Murray Worthy, the charity’s tax campaign manager, said, “This exposure of the industrial scale of global tax avoidance involving Luxembourg clearly highlights the need for global action.

“This is a global issue. As well as high street names, these files also expose how big businesses have been dodging millions of pounds of tax in the world’s poorer countries.

“A fundamental re-think of the world’s tax system is needed, that puts all the issues on the table and includes all countries, including developing countries, as equal partners, to tackle these kinds of abuse.

“The current plan of letting rich countries and tax havens like Luxembourg discuss amongst themselves how to make small changes to the tax system will not stop these scandals.”

Worthy also slammed the recent pledge by G20 and OECD nations to lead the fight against tax evasion and avoidance, saying the reforms “just tinker around the edges of this broken system”.

A spokesperson for PwC said, “All our advice and assistance is given in accordance with applicable local, European and international tax laws and agreements and is guided by the PwC Global Tax Code of Conduct which has been in place since 2005.

“Our global tax code sets out guidance for our tax professionals around the world on a range of issues, including taking into consideration how any tax decisions will be viewed by wider stakeholders.

“Our client relationships are governed by strict confidentiality; we cannot comment on individual cases."

Margrethe Vestager, the European commissioner for competition, said that Luxembourg and the EC were working closely together but explained that the EC could not comment on individual investigations.

Vestager said, "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.

"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 Guardian report can be read here. Tax returns of those involved have also been published on the ICIJ website.

Oliver Griffin

 

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