By Tom Fairless
BRUSSELS--A cache of secret tax documents released Tuesday shed
further light on how Luxembourg has helped multinational companies
to lower their tax bills, in a second major leak that could
intensify pressure on European Union policy makers to close
loopholes that cost national governments billions in lost
revenues.
The latest documents, disclosed by the Washington-based
International Consortium of Investigative Journalists at late
evening local time in Brussels, show how 35 major companies,
including Walt Disney Co. and Koch Industries Inc., used complex
financial structures to funnel profits through subsidiaries in
Luxembourg, potentially avoiding taxes in other jurisdictions.
Luxembourg's finance ministry criticized the "highly
questionable" way in which the documents were acquired, and said
tax avoidance by multinational companies couldn't be blamed on one
country alone.
"Luxembourg agrees that the legitimacy of certain mechanisms,
which are compliant with international and national law, can be put
in doubt from an ethical point of view," the ministry said in a
statement Wednesday. "The analysis of this situation calls for a
broad perspective, and cannot be limited to one country's
regulatory framework."
One Disney subsidiary reported a pretax profit in Luxembourg of
more than EUR1 billion ($1.2 billion) over four years, but it paid
just EUR2.8 million of tax, according to the ICIJ, a tax rate of
about 0.25%.
A spokeswoman for Disney called the disclosures "deliberately
misleading, " adding that "Disney's global tax rate has averaged
34% over the past five years." She said the Luxembourg arrangement
hadn't "meaningfully affected the taxes we pay in any jurisdiction
globally."
The ICIJ said the centerpiece of privately held Koch's tax
arrangements was an internal bank called Arteva Europe, which
managed the cash flows of the conglomerate's European operations
through Luxembourg. A Koch subsidiary paid $6.4 million in taxes on
$269 million in profits from 2010 through 2013, the group said.
Koch representatives couldn't be reached for comment.
The disclosures come amid a determined push by governments,
particularly in Europe, to put an end to financial maneuvers that
allow multinational companies to shift profits to tax havens from
the higher-tax jurisdictions in which they are earned. But previous
efforts to curb tax avoidance and evasion have made painfully slow
progress, in part because all European Union governments must sign
off on changes to the bloc's tax legislation.
Sven Giegold, a European lawmaker and economic spokesman for the
Greens, called on Wednesday for an inquiry by the European
Parliament into tax avoidance by multinationals in the EU. "This
committee should both scrutinize the role of the European
Commission [the EU's executive arm] and shed light on the blockade
by EU governments, which want to continue to facilitate tax dumping
in Europe," Mr. Giegold said.
The first set of leaked Luxembourg tax documents, published a
month ago, revealed details of deals negotiated by accounting firm
PricewaterhouseCoopers for more than 340 of the world's biggest
companies, including package-delivery company FedEx Corp. and
food-and-beverage giant PepsiCo Inc.
At the time FedEx and PepsiCo defended their practices, saying
they did nothing improper.
The latest batch of documents show that the other so-called "Big
Four" accounting firms--Ernst & Young, Deloitte and
KPMG--negotiated similarly aggressive tax deals in the Grand
Duchy.
Ernst & Young and PwC both said their tax advice was in
accordance with applicable laws, and that they couldn't comment on
individual cases because of client confidentiality. PwC said the
reports on its tax advice were "based on partial, incomplete
information, which was illegally obtained." Deloitte and KPMG
couldn't be reached.
Other companies that appear this time include Hong Kong-based
conglomerate Hutchison Whampoa Ltd. Hutchinson said it fully
complied with all applicable tax laws and regulations.
At issue are advance tax agreements, or so-called comfort
letters, from Luxembourg authorities that provide certainty to
companies about how much tax they must pay. Such deals are legal
provided they don't offer special treatment to some companies and
not others.
The European Commission, the EU's executive arm, in recent
months has opened investigations into tax deals struck by four
multinational companies that it says received special treatment--
Apple Inc. in Ireland, Amazon.com Inc. and Fiat SpA in Luxembourg,
and Starbucks Corp. in the Netherlands. Those companies have denied
receiving special treatment.
The latest leak is likely to put fresh pressure on recently
appointed European Commission President Jean-Claude Juncker, who
was Luxembourg's prime minister when most of these agreements were
struck.
Mr. Juncker survived a no-confidence vote by the European
Parliament last month over his involvement in Luxembourg's
controversial tax practices after the two main political blocs
stood behind him.
"By continuing to do pretty much nothing, European leaders seem
content to allow billions in tax revenue to slip through their
fingers," said Natalia Alonso, a deputy director of campaigns at
the humanitarian group Oxfam, which lobbies against tax avoidance.
"Europe cannot wait any longer."
The EU's new competition commissioner, Margrethe Vestager has
said she would pursue the tax investigations as a matter of
priority. Her role it is to scrutinize tax deals that are deemed to
represent government aid that favors some companies over their
rivals.
Ms. Vestager said last month that she considered the first batch
of Luxembourg documents as "market information" that she could
potentially use to launch further probes.
Mr. Juncker, who also served as Luxembourg's finance minister
for two decades, has played down his role in overseeing
Luxembourg's tax system. "The tax administration doesn't have to
report to the finance minister," he said in November.
But the pressure continues to mount. Mr. Giegold said that
unless Mr. Junker swiftly brought forward "comprehensive proposals
to tackle tax dumping and avoidance, his position as Commission
president will become untenable."
Write to Tom Fairless at tom.fairless@wsj.com
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