A “Magical Fairyland” – How Global Multi-National Corporations Avoid Taxes in Luxembourg

Screen Shot 2014-11-08 at 11.10.20 AM“A Luxembourg structure is a way of stripping income from whatever country it comes from,’’ said Stephen E. Shay, a professor of international taxation at Harvard Law School and a former tax official in the U.S. Treasury Department. The Grand Duchy, he said, “combines enormous flexibility to set up tax reduction schemes, along with binding tax rulings that are unique. It’s like a magical fairyland.”

The deals can be so complex that PwC accountants frequently include “before” and “after” diagrams to illustrate how money flows from subsidiary to subsidiary and across different countries and tax havens. The leaked records show that Luxembourg’s 2009 tax deal for Illinois-based Abbott Laboratories – which makes arthritis drugs and Ensure meal replacement shakes –features 79 steps including companies in Cyprus and Gibraltar. Abbott projected it would invest as much as $50 billion via Luxembourg.

More than 170 of the Fortune 500 companies have a Luxembourg branch, according to Citizens for Tax Justice, a nonprofit research and advocacy group. A total of $95 billion in profits from American corporations’ overseas operations flowed through Luxembourg in 2012, the most current statistics from the U.S. Bureau of Economic Analysis show. On those profits, corporations paid $1.04 billion in taxes to Luxembourg – just 1.1 percent.

– From the ICIJ’s report: Leaked Documents Expose Global Companies’ Secret Tax Deals in Luxembourg

The following expose by the International Consortium of Investigative Journalists (ICIJ), at times reads like a movie script. Leaked documents, one of the world’s largest accounting firms, and a retired tax official named Marius Kohl, nicknamed “Monsieur Ruling,” who was described by a Belgian newspaper as “the guardian of the only door through which companies can enter the fiscal paradise of Luxembourg.  This piece has it all.

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Shocker! Multinational Corporations Don’t Pay Taxes

One of the strangest things about the corporate tax debate is that it is nearly impossible to figure out the amount companies are actually paying. Nowhere is there a straightforward number showing how much in federal taxes a firm pays to the U.S. Treasury every year.

– From a recent Washington Post article published March 26

Back in March 2011, I first discussed the extreme extent to which the largest corporations in America go in order to avoid paying taxes, when I highlighted how GE has a unit of 975 people devoted entirely to achieving this end.  It was clear back then that the biggest multinational companies in the nation take advantage schemes and loopholes that would never be available to the average citizen.  Tactics such as the “Double Irish” and the “Dutch Sandwich,” which these corporations expend considerable resources implementing.  Well, now we have an update on the story courtesy of the Washington Post.  We learn that:

Companies have also found ways to shift their income across national boundaries, roving from country to country in search of the lowest tax burden. Ed Kleinbard, a tax professor at the University of Southern California Gould School of Law, has dubbed these movable earnings “stateless income.”

The trend has revolutionized company tax planning, especially in businesses that rely on intellectual property. The Senate Permanent Subcommittee on Investigations found that from 2009 to 2011, Microsoft, a member of the Dow 30, was able to shift offshore almost half its net revenue from U.S. retail sales, or roughly $21 billion, by transferring intellectual-property rights to a Puerto Rican subsidiary. As a result, the subcommittee found that Microsoft saved up to $4.5 billion in taxes on products sold in this country.

Robert Willens, who has been a corporate tax expert for more than 40 years, said he has noticed an unprecedented level of enthusiasm for reducing taxes.  “Maybe it’s just the pressure to produce profits,” Willens said. “I think people realize now that it’s not difficult to avoid U.S. taxes . . . and investors are demanding ­consistently improving performance.”

According to a Congressional Research Service report from January, U.S. multinationals in 2008 reported 43 percent of their overseas profits in Bermuda, Ireland, Luxembourg, the Netherlands and Switzerland, all places famous for having among the lowest tax rates in the world.

The same report noted that profits reported in Bermuda rose from 260 percent of the country’s economic output in 1999 to more than 1,000 percent in 2008.

Complaints voiced, heard

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