Monday 24 October 2016

Finns push millions through Dublin tax shell

The tax affairs of Huhtamaki are a case study in tax avoidance, says Simon Rowe. Secret deals with the Luxembourg authorities helped them save millions

Simon Rowe

Published 29/05/2016 | 02:30

Huhtamaki is a Finnish-based packaging firm with global reach.
Huhtamaki is a Finnish-based packaging firm with global reach.

A Finnish multinational plc that bought a Belfast-based packaging firm for £80m a fortnight ago is funnelling hundreds of millions of dollars through a Dublin-registered shell company as part of an aggressive tax avoidance scheme, it can be revealed.

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Finnish-headquartered food and drink packaging giant Huhtamaki has funnelled more than half-a-billion dollars through Dublin-registered company Huhtamaki Ireland Unlimited as part of a complicated intra-company 'hybrid loan' finance structure involving wholly-owned subsidiaries in Luxembourg, Netherlands, Hungary, Switzerland and America.

Huhtamaki, which purchased folding carton packaging manufacturer Delta Print and Packaging earlier this month, was among 340 global firms identified in 'LuxLeaks' files as having secured secret deals from Luxembourg authorities that enabled them to slash their global tax bills.

It was reported at the time that LuxLeaks companies had channelled hundreds of billions of dollars through Luxembourg and saved billions of dollars in taxes. Some firms enjoyed effective tax rates of less than 1pc on the profits they funnelled into Luxembourg.

Ireland's role in facilitating such aggressive tax avoidance is now under fresh scrutiny, especially in the wake of news that Google faces a French legal probe over how it funnels the majority of its European revenues through its Dublin HQ.

Leaked documents reveal that Huhtamaki formed an Irish-registered company in 2010 within weeks of receiving advice from consulting firm PriceWaterhouseCoopers (PwC) that funnelling funds to Luxembourg through a Dublin shell company would help Huhtamaki slash its global tax bill.

PwC advised the firm's Finnish bosses that such a deal would be "exempt from net wealth tax, and exempt from dividend and capital gains tax" in Luxembourg.

Since 2010, Huhtamaki Unlimited Ireland (HUI) has loaned more than USD$500m to a Luxembourg-based subsidiary, Huhtalux S.a.r.l. The Dublin-registered firm paid no income tax or corporation tax in 2015, nor does it have any Irish employees, according to its latest set of accounts.

The Irish shell company has a loan facility of up to $1bn, according to company filings.

When asked about its approach to tax avoidance, which is entirely legal, a spokeswoman for Huhtamaki said: "As a publicly listed company we do not comment on specific financing arrangements.

"One of the reasons for having financing companies in Ireland is the country's legislation that allows a book-keeping currency other than euro - which in turn allows cost-efficient hedging without external costs.

"The Huhtamaki Group has operations in 34 countries across the globe, so protection against currency fluctuations is important for us."

However, the International Consortium of Investigative Journalists (ICIJ), the body behind the LuxLeaks and Panama Papers investigations, explained that there may be another reason why Ireland and Luxembourg are favoured by companies such as Huhtamaki.

"One of the main benefits of the Luxembourg tax system is the treatment of interest," said a ICIJ spokesperson. "Companies registered in Luxembourg are exempt from tax on interest income. So it makes sense for multinationals to structure their operations in such a way that profits from other countries can flow into Luxembourg as interest.

"Look for signs that foreign profits get transformed into interest when going into Luxembourg. A clever way to do this is by so-called hybrid loans. These have all the characteristics of equity - and are treated as such in most countries - but Luxembourg approves these as debt for tax purposes."

A letter sent by PwC to Luxembourg tax authorities in 2009 regarding "implementation of the Irish-Luxembourg financing structure" specifically refers to loans for equity transactions. PwC advised Huhtamaki that "the interest free loan will be considered as debt for corporate tax purposes" in Luxembourg.

Consultancy firm PriceWaterhouseCoopers devised 548 similar tax-avoidance deals for 350 companies with the authorities in Luxembourg.

The firms involved included Irish dairy giant Glanbia, as well as household names such as Amazon, Pepsi, IKEA, FedEx and Deutsche Bank.

These legal but secret deals feature complex financial structures designed to exploit international tax mismatches that allow companies to avoid taxes both in Luxembourg and elsewhere through the use of hybrid loans.

In a bid to stem public disquiet over aggressive tax avoidance, the EU has pushed through tougher rules on taxation and the use of hybrid loans as a result of the LuxLeaks disclosures.

Closer to home, a tax justice campaign group in Ireland recently held a protest outside PwC's Dublin office and sent a letter of complaint to the consulting firm's chief executive Fergal O'Rourke in response to the ongoing trial of the two whistleblowers behind the LuxLeaks scandal.

Two French former employees of PWC are accused of leaking thousands of documents to a journalist.

Tax justice campaign group Attac Ireland praised the actions of one of the PWC whistleblowers, Antoine Deltour, in correspondence sent to O'Rourke. "Antoine Deltour is the whistleblower who leaked the documents at the source of LuxLeaks scandal," the group wrote.

"PwC obviously believes that this is wrong but, had he not done so, the public would have remained unaware of the massive tax avoidance schemes used by multinational companies, with the help of large accountancy firms such as yours."

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