Banks HSBC, Citi and Credit Suisse, as well as retailers Apple, Amazon, Vodafone and IKEA are mentioned in the report.
Journalists behind the article target specific measures that corporations use to dodge taxes through Luxembourg investments – many of which are included under the BEPS (Base Erosion and Profit Shifting) initiative.
Luxembourg levies 0% withholding taxes on interest and royalty payments, and 0% or 15% on dividends depending on whether a qualifying corporation is in a treaty country.
Under Amazon’s arrangement with Luxembourg, a subsidiary can pay royalties that are tax deductible to a partner company which is not required to pay corporate taxes.
Hybrid arrangements, being dealt with as part of the OECD’s BEPS Action Plan under action point 2, are mentioned. The leaked documents also highlight micro-interest or interest free payments on inter-company loans. The report points out that while such arrangements are not illegal, they are among the topics to be discussed at G20 meetings this month.
In a statement, Australian Tax Office commissioner Chris Jordan pledged to investigate the accusation that 343 Australian companies were avoiding tax through structures set up in Luxembourg.
“We will be checking the data that has been published and if we see discrepancies from what we’ve been told we will take audit action.”
“I have written to our tax treaty partners, inviting their collaboration in joint investigation of this data to understand any tax risks and to explore opportunities for joint compliance approaches,” said Jordan.
Jordan also emphasised that advance pricing agreements (APAs) are available to corporations unsure of their tax positions.
“I have previously instructed my staff to make sure that APAs are not issued on high risk tax planning arrangements. We can also withdraw from an APA if we have been misled or the taxpayer has not adhered to the arrangement. We would then assess any further tax risks and take appropriate action, which could include review or audit.”
Journalists singled out PwC for using Luxembourg structures to minimise their clients’ tax liabilities. The firm stated: “All our advice and assistance is given in accordance with applicable local, European and international tax laws and agreements.”
“Our client relationships are governed by strict confidentiality; we cannot comment on individual cases.”
David Hood, country manager of IKEA in Australia responded to allegations by declaring “IKEA Group retailer in Australia pays all taxes incurred nationally and locally in accordance with the laws and regulations of the country.”
Awkward timing
The documents are released at a delicate time for finance leaders. Just last week 51 countries, including Luxembourg, pledged to eradicate banking secrecy through a formal signing of the Multilateral Competent Authority Agreement.
Former Luxembourg prime minister Jean-Claude Juncker became leader of the European Commission on November 1. Before Juncker stepped into the role, the European Commission expanded its investigation into how Luxembourg offers tax incentives. According to Bloomberg, the EU is looking into Luxembourg’s tax arrangements with McDonald’s and Microsoft.
Members of the European Union are this week convening to discuss tax policies.
The ICIJ is withholding some names of the companies in its report. It is expected to release additional names and documents in the coming weeks.
Multinational corporations have been feeling the brunt of the BEPS crackdown. The ICIJ report refocuses global attention onto leaders of tax havens such as Luxembourg and on G20 nations, who will be expected to deliver solutions as early as this month during meetings in Brisbane.
