Journalists from 40 international media outlets on Wednesday used leaked documents to expose tax avoidance by major international companies — like Ikea, PepsiCo, and Amazon — in Luxembourg through secret deals between more than 300 multinational corporations and the tax authorities of the tiny landlocked Western European country.
Working through the International Consortium of Investigative Journalists (ICIJ), reporters examined over 28,000 pages of documents, detailing Luxembourg's handling of deals with hundreds of multinational corporations that allowed the companies to jointly cut billions from their tax payments worldwide. Most of the documents were Advance Tax Agreements, or so-called "comfort letters," which are rulings that determine in advance the way businesses will be taxed by the country's tax authorities, including any information pertaining to judicial and financial exemptions.
It's well known that Luxembourg has been a place where international companies could flock to for avoiding taxes in other countries — using subsidiaries headquartered into the European nation to funnel profits and minimize or avoid tax payments abroad — and Wednesday's reports reveal the depth of involvement the country's officials have had in the process.
Speaking to VICE News, Eric Pichet, a professor at France's KEDGE Business School, explained the implications of these reports. Because Luxembourg has taxes it is not an official tax haven, but he said these new documents do bring up questions.
"The key problem in this file, is that Luxembourg is not an official tax haven, since it does have taxes. Nevertheless, [the government] has developed a system of tax rulings, which are secret agreements between tax authorities and the companies," Pichet said. "What is very questionable in this affair, is that by doing so Luxembourg has denied other member states part of their taxable base."
VICE News spoke with French European Parliament member Eva Joly — a member of France's Green Party who has been fighting for more than two decades against European tax havens — to get her take on the leaked documents and the significance of these new revelations.
VICE News: Were you surprised by what you read in the papers, this morning?
Eva Joly: I have been fighting against tax havens for 25 years. I know what part Luxembourg plays, how much of its wealth is built on mining the legitimate and regular resources of its neighboring countries. Their main industry is "tax optimization" if you're being nice, or "tax fraud" if you want to go more in depth. After WWII, that country was nothing but fields. The [gross domestic product] per capita in Luxembourg is today the highest in Europe.
How long has Luxembourg been on your radar with this topic?
Ever since the end of the 1990s. Through some of the investigations I led in Paris as a magistrate, I could see that Luxembourg was a problem. There were recurring financial movements over there. I then led some inquiries to understand how the country had established this "tax optimization," on an industrial scale, inquiries into the role that Luxembourg's companies played in these mechanisms. What is interesting with the work presented by the journalists today, is that we can now measure the scale and the amount of these tax evasions
What has been brought to light today is certainly "secret," but not illegal.
The line between these systems and illegality is tenuous. It rests on the fact that the authorities do not handle these files. The gap between the political debates and the reality of this tax evasion is terrible and increasingly problematic because what we are seeing is an acceleration and an increase of the sums that are going into Luxembourg. The law does not intervene because everything is opaque. It takes forever on a legal level... It's an enormous job and so the legal side is never fully investigated. There are very few attempts by criminal courts against multinationals, because of the technicalities.
Why are these procedures not reevaluated and simplified?
It has stalled for political reasons. I have been covering these cases for years, and what I do know is that the world is not governed by good sense, but by multinationals. Their interests forestall any reform projects. The porousness between multinationals and politicians does nothing to help question a system that contributes to the concentration of the world's resources. The system is increasingly occurring and it contributes to the confiscation of the wealth from developing countries. For example, I saw Pepsi-Cola on the list of multinationals involved. They have a factory in Mexico and I wonder how much tax they pay there. In Europe, we complain about immigration issues, but at the same time, we deny those countries that need financial support. If this information is coming out today, it is because the situation is becoming untenable for the employees of these companies who are establishing such systems. They're being made to do things they don't want to do. That's why the information is seeing the light of day. Next, it's the journalists who put this on the table. Civil society is the one who reacts, who gains awareness of these issues.
What are your suggestions for the fight against this concentration of wealth?
I am committed to the following rule: taxes must be payed [in the country] where the activity takes place. The Green Party successfully introduced an amendment in European parliament asking banks to give us their numbers for each country: revenue figures, staff numbers, etc. This must be extended and applied to multinationals.
Can Jean-Claude Juncker, the president of the European Commission, lead on this project?
I voted against him in the election. The system we are talking about [today] was developed when he was the prime minister of Luxembourg, from 1995 to 2003. The secret tax agreements date back to that era. The situation is simple: Jean-Claude Juncker has to act or leave. He has to expedite new enquiries and draw conclusions. Meaning, he has to set a minimum tax rate for multinationals and request their numbers country by country. He has to put in place regulation.
Follow Etienne Rouillon on Twitter: @rouillonetienne
Image via Flickr/Dennis Jarvis