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November 6, 2014

Leaked documents show aggressive tax planning practices in Luxembourg

By Isabella Grotto

An investigation into tax planning in Luxembourg by a group of European journalists, published today by UK newspaper the Guardian, has uncovered documents linking over 1,000 multi-national corporations to large-scale tax planning in the country.

A significant number of the files appear related to clients of PwC. Responding to the discovery, PwC described the information contained in the documents as "outdated" and "stolen". The firm added that the theft had been reported to the relevant authorities.

A report published today by the Guardian said the 28,000 leaked pages of tax agreements, returns and other sensitive information pointed to some of the world’s largest corporations’ "multi-billion dollar tax secrets".

The findings come barely a week after Luxembourg pledged its support for tax transparency as a signatory of the OECD’s multilateral competent authority agreement on tax information exchange.

Among the UK and Irish companies implicated are Icap, a trading firm, pharmaceutical company Shire and vacuum cleaner manufacturer Dyson. Others include household names such as Pepsi, Ikea, Procter & Gamble, Burberry, Heinz, Amazon and FedEx.

The documents appear to show companies using "webs of internal loans and interest payments" to significantly reduce their tax dues.

Despite being legal, competitive tax planning practices are being increasingly criticised by the international community. The multilateral competent authority agreement is among the latest example of the mounting focus on harmful tax practices exemplified by initiatives such as the Base Erosion and Profit Shifting (BEPS) programme by the OECD.

Warwick University professor Crawford Spence said although the news did not come as a particular surprise, the details emerged might help garner further attention to the issue of tax planning and criticised Luxembourg for failing to enforce international guidelines.

"We now know that companies and their very well paid tax advisors have concocted all sorts of schemes to avoid paying tax in the countries in which they operate," he said.

He added responsibility for harmful tax practices also rests with the jurisdictions they occur in. "If governments want to collect more tax income from companies, then national legislators need to make a concerted effort to implement OECD guidelines and prevent countries such as Luxembourg from undermining their efforts," he explained.

"Luxembourg is like a corporate version of extraordinary rendition, a place where companies can do their dirty work that would not be permitted at home."

Related stories:

International tax agreement welcomed but worries over implementation linger

Fair corporate tax regime faces uphill task

OECD tax avoidance recommendations: talking the big talk or game changer?

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