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Jean
Claude Juncker the new EU president is going to get a hard time from critics
because of the scenario seemed to have transpired mainly during his tenure as
Luxembourg Prime Minister!
The
story is detailed by RT.com:
Billions
of dollars have secretly passed through Luxembourg, the heart of the EU, an
investigation by journalists has unearthed in leaked documents. PepsiCo, IKEA,
FedEx and 340 other international companies use the tiny country to slash their
tax bills.
The
1,000 square mile country sandwiched between France, Germany, and Belgium is
the center of EU tax dodging, but not because it offers a low income tax rate
like Ireland or Cyprus or no taxes at all, like Malta. Officially, Luxembourg
has an income tax rate of 29 percent, which is relatively high among developed
economies.
However,
companies use Luxembourg as a tax conduit because they can send money in and
out almost tax free.
Companies
flock to the Grand Duchy because they can save on taxes by channeling billions
through Luxembourg, according a new report by the International Consortium of
Investigative Journalists (ICIJ), which reviewed 28,000 pages of confidential
documents.
American
corporations have only had to pay 1.1 percent taxes or US$1.04 billion on over US$95
billion in overseas profits in 2012, according to data from the US Bureau of
Economic Analysis.
More
than 170 Fortune 500 companies have a Luxembourg subsidiary, according to
Citizens for Tax Justice, a nonprofit research and advocacy group.
The
EU has said they are already looking into the case, and will take "corrective
actions" if necessary, spokesman of EU chief commissioner Jean-Claude
Juncker told AFP following the leak.
The
documents show PepsiCo used Luxembourg to channel at least US$750 million to
reduce its tax rate on the US$1.4 billion purchase of JSC Lebedyansky, Russia’s
largest juice maker. Shortly after, the subsidiary was moved to Bermuda.
Sweden’s
furniture giant IKEA is using Luxembourg as a tax conduit by opening a
Luxembourg holding company and a Luxembourg finance company, as well as a
Liechtenstein foundation and a Swiss finance arm to “outsource” part of its
financing operations.
US-based
global transport company FedEx, used Luxembourg to send money from Brazil,
Mexico, and France to Hong Kong, tax free. Luxembourg only taxes 0.25 percent
on non-dividend income, which left 99.75 percent in profits and earnings
untaxed.
“A
Luxembourg structure is a way of stripping income from whatever country it
comes from,’’ Stephen Shay, a tax professor at Harvard Law
School and former US Treasury Department tax official, told the ICIJ.
According
to Shay, Luxembourg “combines enormous flexibility to set up tax reduction
schemes, along with binding tax rulings that are unique. It’s like a magical
fairyland.”
Luxembourg’s
economy is heavily reliant on income taxes, which account for 5 percent of the
country’s gross domestic product.
The
country has the highest volume of foreign investment in the EU, which
contributes to the US$2.73 trillion held by Luxembourg's investment funds,
according to an estimate by the financial consulting firm Ogier.
A
founding member of the EU, Luxembourg enjoys the privilege of tax secrecy and
trust from the international financial community.
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The
European Commission, along with the G20, has made it their goal to oust secret
banking regimes, and until recently, Luxembourg has been very reluctant to sign
on.
However,
in late October, along with the other 27 member states of the EU, Luxembourg pledged
to build a collective financial data exchange starting in 2017 in a step
towards ending banking secrecy. Austria will join in 2018.
Other EU countries use the
tax haven model to their advantage. Malta has no corporate taxes, Cyprus only
levies at 10 percent tax, and Ireland only 12.5 percent.
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