While many ordinary people, even the poor, are now burdened with taxes such as GST or VAT, some multinational corporations are channelling billions of dollars through Luxembourg to drastically slash their global tax bills in some cases to an effective tax rate of less than 1 per cent.
The International Consortium of Investigative Journalists found that some 340 major firms have secured secret deals from Luxembourg to cut their global tax bills.
Certain Big Four audit firms have played a key role in facilitating these deals. One such audit firm helped these MNCs to obtain 548 rulings in Luxembourg from 2002 to 2010. “These legal secret deals feature complex financial structures designed to create drastic tax reductions. The rulings provide written assurance that companies’ tax-saving plans will be viewed favorably by Luxembourg authorities.”
The ICIJ said many of these tax deals exploited international tax mismatches that allowed companies to avoid taxes both in Luxembourg and elsewhere through the use of so-called hybrid loans. It said big companies can achieve huge tax savings by creating complicated accounting and legal structures that move profits to Luxembourg, where tax rates are lower, from higher-tax countries where they maintain their headquarters or do lots of business. “Some firms have enjoyed effective tax rates of less than 1 percent on the profits they’ve shuffled into Luxembourg.”
Subsidiairies of these MNCs in Luxumbourg may handle large sums of money – but they maintain little presence or economic activity in Luxembourg, noted the ICIJ. “One popular address (in Luxembourg) – 5, rue Guillaume Kroll – is home to more than 1,600 companies.”
Of course, the MNCs and audit firms involved would say what they are doing is perfectly legal.
And yet, we wonder why income inequality is growing around the world…
Visit the ICIJ website to find out the names of some of these MNCs and the audit firms that are helping them.