Sweetheart deals that Luxembourg has offered to multinational companies including Pepsi, Volkswagon, Ikea and Amazon have been exposed in documents leaked from the world’s second-largest accounting firm PwC to the International Consortium of Investigative Journalists (ICIJ).
The ICIJ described the landlocked European duchy as a “magical fairyland”, with some companies paying a tax rate of less than one percent on profits, made possible through a complex structure that allowed them to funnel profits to Luxembourg from high-tax countries.
The ICIJ leaks include revelations about several companies connected to Denmark, including TDC and Ikea, with the promise of three more to be revealed in the coming days.
One of the leaks details how Luxembourg helped the five capital funds that overtook telecommunications company TDC actively avoid paying Danish taxes. According to Politiken, which was one of 31 media outlets in 26 countries to be given access to the leak, the capital funds secured massive tax rebates by sending internal interest payments to an ownership company in Luxembourg, where a secret tax deal secured the funds that just 0.03 percent of the revenue from Denmark would be taxed.
When the Danish parliament attempted to put a stop to the practice, the leaks reveal that PwC again approached Luxembourg authorities on behalf of the capital funds to get the deal changed in order to avoid paying taxes in Denmark.
The Danish tax minister, Benny Engelbrecht, said the revelations were “shocking”.
“Tax payments are down to percentages that are so crazy that you can almost not even describe the challenges that they create for other countries,” Engelbrecht told Politiken.
A representative from the Danish tax authority Skat said that the agency is currently working on calculating the tax gap for major corporations but that it might take up to three years to figure out how much money Denmark has lost out on due to companies’ use of tax havens like Luxembourg.
The findings will put Jean Claude Juncker, Luxembourg’s ex-prime minister and the recently appointed chief of the European Commission, in a tricky position.
Juncker, who stepped into the EC post on November 1st, helped transform Luxembourg from an economy once based on farming and steel production to a low-tax haven for business.
He came into the EC position shortly after the commission expanded an inquiry into Luxembourg’s tax incentives, which included tax arrangements with Fiat Finance, a unit of the Italian car manufacturer, Apple in Ireland and Starbucks in the Netherlands.
Juncker’s competition commissioner, Denmark’s Margrethe Vestager, said the leaks would intensify the commission’s investigation of tax agreements.
“Revelations like the ones that have been put forward here will certainly move the matter higher up on the agenda. It will make it much, much more difficult to not act if there are many people interested in the topic,” she told Politiken.
Luxembourg officials defended the country’s system.
“No way are these sweetheart deals,” Nicolas Mackel, chief executive of Luxembourg for Finance, a quasi-governmental agency, told ICIJ.
“The Luxembourg system of taxation is competitive – there is nothing unfair or unethical about it.”