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Companies' secret deals with Luxembourg to slash tax bills fuels anti-corruption campaign for corporate openness
Leaked documents showing more than 340 brand-name global companies struck secret deals with Luxembourg to slash their tax bills by shifting profits around the world has added momentum to anti-corruption activists' campaign for corporate openness.
Shell companies, secrecy laws and corporate tax shopping long have been in the cross hairs of groups such as Global Witness, Transparency International and Tax Justice Network, especially after the 2008-2009 financial crisis exposed the dangers of opaque corporate structures.
Now comes a report from the International Consortium for Investigative Journalists (ICIJ) saying that companies including PepsiCo Inc and Deutsche Bank AG saved billions of dollars by channelling money through Luxembourg, which helped them reduce their tax burden in countries where they operate.
The nearly 28,000 leaked documents reviewed by ICIJ journalists included hundreds of private tax rulings by Luxembourg to corporations seeking favourable tax treatment.
Pepsi and Deutsche Bank were not immediately available for comment. Luxembourg officials denied any "sweetheart deals".
"There is nothing unfair or unethical about it," Nicolas Mackel, chief executive of Luxembourg for Finance, is quoted as saying in the ICIJ article.
Try telling that to the citizens of a poor country.
According to a report by Christian Aid, trade-related tax evasion costs developing countries an estimated $150 billion a year in lost tax revenues - more than the total amount of foreign development aid in 2013.
From a policy standpoint, the latest revelations are timely.
On Friday, the European Union finance ministers meet, and corporate structures is on their agenda. The issue will also go before leaders of the Group of 20 top industrial and developing nations who gather next week in Brisbane, Australia.
Activists are pressing hard for reform on two planks:
- Shell companies: They want countries to ring the bell on secret corporate ownership and require public disclosure of who really benefits from opaque corporate structures.
- Country-by-country reporting: They want multinational companies to report their revenues and before-tax profits country by country so that jurisdictions can accurately levy taxes where the money is made. A Transparency International report this week showed that 90 out 124 major global companies do not report the taxes they pay in foreign countries.
Porter McConnell, manager of the Financial Transparency Coalition representing non-governmental groups working for tax fairness and combating illicit money, said on Thursday the ICIJ report underscores the urgency for action.
“While G20 leaders proclaim that the era of corporate secrecy has past, this blatant example from an EU country shows now more than ever the need for more transparency, which is why so many are calling for an ambitious programme to improve the health of the global financial system,” McConnell said in a statement.
Neither of the activists' proposals is radical.
Already the EU has embraced country-by-country reporting for financial institutions as a way to assess bank risk, and it has plans to expand that to other companies in 2018.
New rules in the EU and the United States also will require extractive industries to report payments they make governments for oil, gas and mining rights on a country by country basis.
On the tax front, the European Commission is investigating the tax treatment of U.S. coffee chain Starbucks Corp in the Netherlands, and it has accused Ireland of ducking tax rules by letting Apple Inc shelter billions of dollars there in return for jobs.
As for the G20, it has been studying profit shifting by corporations extensively and has agreed to exchange more tax information, while the G8 major industrial nations have backed plans for disclosing beneficial ownership of shell companies. The United Kingdom already has drafted new rules.
The time has come for the international community to recognise that tax fairness is not merely a moral and ethical issue, it's also about global stability, said Transparency International, the global anti-corruption watchdog.
Tax deals struck in one country have repercussions in another because they can deny countries the money they need for public services, and tax evasion can exacerbate public deficits, it said.
Moreover, opinion polls show a groundswell of support for more disclosure on how and where corporations make their profits, said Transparency International programme director Ben Elers.
"Multinationals will have to wake up to their global responsibilities, and they will be forced to change."
(Editing by Alisa Tang)
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