Friday 23 February 2018

Firms hit by Luxembourg tax crackdown after leaks row

‘Companies need predictability and legal certainty,’ said Luxembourg's finance minister Pierre Gramegna. (Bloomberg)
‘Companies need predictability and legal certainty,’ said Luxembourg's finance minister Pierre Gramegna. (Bloomberg)
John Mulligan

John Mulligan

Luxembourg is shoring up its tax rules in an effort to prevent companies from around the world avoiding tax by funnelling money through the tiny Duchy.

Dozens of Ireland-based companies - both domestic and units of foreign firms - use Luxembourg entities to maximise tax efficiencies.

Their frequently complicated corporate structures are perfectly legal, but were the focus of intense international scrutiny in 2014 when the so-called 'LuxLeaks' releases showed how Luxembourg authorities inked deals with global companies for advantageous tax treatment.

Companies were able to slash their taxable income by using subsidiaries in Luxembourg.

The leak of the PriceWaterhouseCoopers (PWC) documents that detailed the tax avoidance measures saw two former PWC employees given suspended sentences during the summer following trials in Luxembourg.

They have appealed those sentences and the case is set to resume next week.

The documents leaked included details of agreements involving Irish dairy firm Glanbia, Sisk, and a number of multinationals with subsidiaries in Ireland.

Other international firms such as Deutsche Bank, Ikea and PepsiCo also availed of agreements in Luxembourg to cut their tax liabilities.

The revelations caused uproar and prompted probes by national tax authorities as well as the European Commission.

Yesterday, Luxembourg's finance minister, Pierre Gramegna, said in a statement that in an "increasingly complex world, companies need predictability and legal certainty".

The Ministry said that a new measure that details the tax treatment of intra-group financing transactions takes account of the latest developments at international and European level.

"The new article… and the related circular… are the fruit of the good working relationship and the constructive dialogue between our services and the DG Competition of the European Commission, which I welcome," added Mr Gramegna.

The new "arm's length" rules mean that financing undertaken between different units of the same company should be done as if they were unrelated firms

The new law comes into force on January 1 and tax rulings made before the new law enters into force will no longer apply after the 2016 tax year.

The 'LuxLeaks' reports overshadowed the start of Jean-Claude Juncker's term as EU Commission President, as he was Luxembourg's Prime Minister for almost two decades before taking office in Brussels.

The European Commission, which enforces competition rules in the European Union, welcomed the new rules but would not say how they would affect its ongoing investigations.

"The general, forward-looking change of approach announced by Luxembourg is very welcome," Commissioner Margrethe Vestager said yesterday.

Last year, the European Commission ordered Luxembourg to recover €20m to €30m from Italy's Fiat, saying the carmaker had benefited from illegal tax deals with the Grand Duchy.

LuxLeaks was co-ordinated by the International Consortium of Investigative Journalists (ICIJ).

It said that hundreds of companies appeared to have channelled hundreds of billions of dollars through Luxembourg and saved billions of dollars in taxes by doing so. (Additional reporting Reuters)

Irish Independent

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