Luxembourg at centre of tax avoidance furore

A CACHE of almost 28,000 documents describing tax deals struck with Luxembourg shows the tiny EU state was facilitating more than 1,000 multinationals in tax avoidance activities.

Major companies including FTSE 100 drugs group Shire, City trading firm Icap and vacuum cleaner firm Dyson, who are headquartered in the UK or Ireland, used transfer pricing and internal loans to drive down their tax bills, the Guardian reports. Those arrangements – which are entirely legal – were signed off by the Grand Duchy.

The investigation – carried out by 80 reporters across 26 countries through the International Consortium of Investigative Journalists – found a Luxembourg unit of Shire received more than $1.9bn (£1.2bn) in interest income from subsidiaries over the last five years, paying corporation tax of less than $2m over four of the years despite minimal overheads.

Vacuum cleaner and hand dryer manufacturer Dyson had arms established in the Isle of Man and Luxembourg in order to make £300m in internal loans to its UK businesses in 2011. Interest payments allowed it to cut its tax bill, while it paid 1% in Luxembourg.

Icap loaned $870m from Luxembourg to its US business for seven years. Interest paid out from US companies on those loans was £247m, again allowing it to save millions on its tax bills.

For their part, all three businesses maintain they do not engage in tax avoidance and they pay tax where their profits are made. Dyson told the Guardian that its Isle of Man and Luxembourg structures were unwound in 2013. Icap said it had started a process of winding down its Luxembourg financing companies last month as part of a wider reorganisation.

The leaked documents primarily relate to clients of PwC.

The documents show that while under a third of the deals involving PwC include a figure for the sums the multinationals intended to channel through Luxembourg, the ones that did amounted to £215bn between 2002 and 2010. Given that many did not include figures and that PwC is one of many firms dealing with Luxembourg, the true figure is likely to be far higher.

PwC said in a statement: “PwC provides advice to clients on the issues that are important to them in running their businesses including a wide range of tax issues. All our advice and assistance adheres to local, European and international tax laws and agreements and is guided by the PwC Global Tax Code of Conduct . The international tax rules are currently being updated by the OECD, and PwC supports and is actively involved in these discussions.

“The documents referred to date back a number of years – we cannot comment on individual cases.”

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