What’s in It for the Tax Havens
“The offshore industry is a major threat for our democratic institutions and our basic social contract.”
- Thomas Piketty,
This is a continuation of my series on how governments allow multinational corporations to avoid tax by pretending sales made in their country are made in a tax haven. The methods permitted internet companies like Amazon are explained here. The method allowed for brick and mortar businesses, here.
In my post about Amazon, we saw that Ian Griffiths, of The Guardian, disclosed the startling fact that Amazon claimed sales in Britain of $213 million, while its sales in Luxembourg were $11 billion.
Luxembourg? It’s the last Grand Duchy of Europe.
* With a population under 500,000, it’s a country smaller than the average American city.
* It’s one of the world’s leading financial centers and recognized as being in the big leagues with New York, London, and Hong Kong.
How can little Luxembourg be so amazing? It sells something everyone wants, something more valuable than gold, diamonds, or oil — tax relief, and at a very affordable price.
The Financial Times described it: “Luxembourg sometimes resembles a criminal enterprise with a country attached.”
But calling little Luxembourg a criminal enterprise is a bit unfair because countries like the US — including its tax courts — declare that these tax avoidance schemes by multinational corporations are completely legal.
Whereas in most developed countries, the corporate tax rate would be about 30% (only 21% currently in the U. S.), a tax haven like Luxembourg will charge only 2%. It will give the corporation a tax opinion guaranteeing this rate, provided that the corporation also agrees to have a minimum footprint in the country.
So, for those sales in Britain, Amazon will have most of its employees in Britain, but only a token staff, if any, in Luxembourg. Therefore, the British taxpayers are paying for those employees’ healthcare, their children’s education, and so on and so on. Luxembourg is providing none of these services. The 2% is pure gravy.
Is It Really That Big a Tax Haven?
In 2014, a Luxembourg PricewaterhouseCooper (PwC) auditor, Antoine Deltour, grew upset at what he saw internally and how nothing was done from the revelations about Amazon two years earlier. He felt he had to do something.
He leaked hundreds of documents revealing that PwC had secured secret tax deals with the Luxembourg government, allowing these companies to pay effective tax rates as low as 0.25% in Luxembourg- even though the business was done in other countries.
He appeared on the French equivalent of 60 Minutes called Cash Investigations and described the immense extent of corporate tax avoidance including evidence of tiny office buildings with a long list of large multinationals (MNCs) with addresses on their doors. On one building entrance, there were 340 MNCs listed on the brass plate.
Think of the names of all the big corporations you know until you are too tired to continue: Microsoft, Amazon, Koch Industries and so on and so on. Most will be a brass plate company in Luxembourg. As one would expect, the name “Disney” appears in this fairyland of dreamy tax rates.
However, unlike in America,
* the media sided with the whistleblower and gave extensive coverage to his situation
* the European public was outraged
* supporters started a fund to pay Deltour’s legal fees.
Although convicted at trial, the enormous pressure from the public, and other European governments, caused the Luxembourg Court of Appeal to give Deltour a whistleblower defense.
However, the genie was out of the bottle. The Detour revelations exposed the billions of dollars of tax avoidance, and the willful blindness of all governments so that they did nothing about it. Politicians had to act. As a result, the Organization for Economic Cooperation and Development (OECD) developed a reform to stop it. Will it be an honest attempt to stop tax evasion, or will it be another smokescreen protecting it?
We will look at it next.
Originally published at https://jandweir.substack.com.
