TAXES SHMAXES
The International Consortium of Investigative Journalists, a network of 185 reporters in 65 countries, have collaborated on a transnational investigation into tax fraud by governments and major corporations. These organizations, who’ve conspired to keep hundreds of billions of dollars to themselves and out of the hands of our very needy public works and institutions, include: American International Group (AIG), Amazon, Burberry, the Carlyle Group, Coach, Deutsche Bank, FedEx, H.J. Heinz, IKEA, JP Morgan Chase, Pepsi, Procter & Gamble and hundreds of others.
For a Canadian example, in 2008, the Public Sector Pension Investment Board (the board managing pensions for all federal employees, including the RCMP) obtained a private tax exemption ruling from Luxembourg. The board then set up an office in Luxembourg where it rents a desk by the month and hires two employees to watch over its investments. (Some corporate “offices” have no employees at all; and, in fact, it’s not uncommon for a small building to be home for, on paper, up to 1,600 companies. 5 Rue Guillaume Kroll is one such place, and there are others.) This Luxembourg office enabled the Canadian investment board to avoid, for example, German land transfer taxes and taxable income on a $600 million real estate deal in Berlin.
In response to these revelations the Canadian pension board says their tax avoidance scheme complies with all laws and regulations. They say that because the fund has tax-exempt status in Canada they have ultimately gained “no tax advantage” by routing their money through Luxembourg. (Of course this explains why they would go through all the trouble of establishing an elaborate scheme involving Luxembourg; and why their office in Luxembourg happened to have been established before their purchase of and profiting from their German real estate deal, altogether allowing them to sidestep German taxes of 30% on $600 million...) For it’s involvement the CEO of Luxembourg Finance, Nicolas Mackel, tells us that “In no way are these sweetheart deals ... there is nothing unfair or unethical about it.” “If companies manage to reduce their tax bills to a very low rate, that’s a problem not of one tax system but of the interaction of many tax systems.” Right. So it’s not your fault it’s the fault of a system you’ve co-developed and collude with others to exploit for mutual gain. Okay.
As a global center of investment, second only to the United States, Luxembourg (a country of only half a million people) manages $3.7 trillion in its banks and financial institutions. Almost two hundred Fortune 500 companies have a Luxembourg branch. Of the $95 billion in profits these American corporations funneled through Luxembourg in 2012, (the most current data we have) these corporations paid only $1.04 billion in taxes to Luxembourg. That’s a tax of just 1.1%.
Interestingly, Luxembourg’s official statutory tax rate sits at 29%. This is as high, or higher, than many federal corporate tax rates around the globe (Canada 26%), but much lower than the official American corporate tax rate of 35% for earnings over $18 million. For comparison, other globally recognized tax havens, like Ireland, advertise a corporate tax rate of just 12.5%. So the aforementioned 1.1% average for U.S. companies is a tiny fraction of what the public would have assumed these corporations to be getting away with.
Total U.S. investment in Luxembourg is around $400 billion, with most of that sitting in holdings companies and other fronts. Amazon.com itself reported to have moved $20 billion through Luxembourg in just one year alone. Other leaked records show that Luxembourg’s 2009 tax exemption scheme for Abbott Laboratories – the company that makes, among other things, those popular Ensure meal replacement shakes – involved a 79 step process with subsidiaries established in Cyprus and Gibraltar. At the time, Abbott Labs projected it would move $50 billion through its Luxembourg scheme.
A typical tax exemption scheme works by having profits move from an office in a high-tax European country to a Luxembourg entity. These profits are treated as interest payments to the Luxembour wing, where they are made tax exempt. In the parent company’s country, these funds can then be treated as dividends, which are eligible for tax exemption there. (Which is how you dodge the stated tax rate of 29%.) Leaked documents from PriceWaterhouseCoopers, one of the world’s largest accounting firms, show that in 2009 Amazon’s European operations reported more than €519 million in “royalty expenses” while Amazon Europe Holding Technologies SCS (its company in Luxembourg) had an influx of the exact same amount. Thanks to the movement of these “royalty expenses” through Luxembourg, Amazon Europe posted a meagre taxable profit of only €14.8 million (just 2.8% of the original €519 million) – on which it paid just €4.1 million in taxes (or 0.79% of the original.)
(Now I hope you’re relating and compounding all of this information with what you know about declining wages and benefits, growing unemployment and under-employment, shrinking government budgets, evaporating social programs, and deteriorating infrastructure.)
...News organizations working together on a six-month investigation of tax avoidance schemes in Luxembourg include: the CBC, CNBC, The Guardian, LeMonde, Süddeutsche Zeitung and NDR/WDR in Germany, Denmark’s Politiken, Japan’s Asahi Shimbun, Brazil’s Folha de S.Paulo, and others. More will be revealed soon.
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