Biggest Names In Wealth Management Exposed In Luxembourg Tax Avoidance Scheme

Stephen Little Reporter London November 6, 2014

Biggest Names In Wealth Management Exposed In Luxembourg Tax Avoidance Scheme

UBS, Deutsche Bank, and Credit Suisse are among nearly 340 firms that have secured deals from Luxembourg to slash their global tax bills, according to a new investigation.

UBS, Deutsche Bank, and Credit Suisse are among nearly 340 firms that have secured secret deals from Luxembourg that allow many of them to slash their global tax bills, according to a review of almost 28,000 leaked confidential documents by The International Consortium of Investigative Journalists.

The Washington DC-based ICIJ said on its website that companies have channelled hundreds of billions of dollars through Luxembourg, saving billions of dollars in taxes, with some firms reportedly enjoying effective tax rates of less than 1 per cent on some of their profits into Luxembourg.

The news could prove to be particularly embarrassing for European Union Commission chief Jean-Claude Juncker, who became head of the EU’s executive arm last week after 18 years as prime minister for Luxembourg, during which time many of the deals investigated were made.

The leaked documents revealed that global accountancy firm PricewaterhouseCoopers has helped multinational companies obtain at least 548 tax rulings in Luxembourg between 2002 to 2010, providing written assurance that companies’ tax-saving plans will be viewed favourably by Luxembourg authorities.

Many of the tax deals exploited international tax mismatches which allowed firms to avoid taxes in Luxembourg and elsewhere through the use of hybrid loans. 

In many cases Luxembourg subsidiaries handling hundreds of millions of dollars in business maintain little presence and conduct little economic activity in Luxembourg.

Other financial firms that benefited from the scheme are said to include ABN AMRO, AVIVA, AXA Group, BNP Paribas, Banca Marche, Julius Baer, Lombard Odier, Merrill Lynch, Schroders, Prudential, Rothchild, HSBC, Citigroup, Investcorp, Barclays, JP Morgan, Permira, SBERBANK, State Street Group and UNI Credit Group.

“These are historic documents, obtained illegally in 2012, when the matter was reported to the relevant authorities. Legal proceedings are ongoing,” a PwC spokesperson told this publication.

"All our advice and assistance is given in accordance with applicable local, European and international tax laws and agreements and is guided by the PwC Global Tax Code of Conduct which has been in place since 2005. Our global tax code sets out guidance for our tax professionals around the world on a range of issues, including taking into consideration how any tax decisions will be viewed by wider stakeholders,” PwC said in statement.

AXA said in statement that AllianceBernstein, the US asset manager which it owns two-thirds of, signed an agreement with the Luxembourg tax authority in 2008.

“This agreement, which is both legal and commonly used, relates to the accounting method used to calculate asset amortization. This agreement has therefore nothing to do with transferring profits from one country to another for fiscal reasons: it concerns an asset that has always been located in Luxembourg,” AXA said.

Game changer

The revelations are likely to trigger further calls for politicians to crack down on firms that take advantage of international tax laws and avoid paying tax and increase pressure on Luxembourg over its role as an offshore jurisdiction.

Ronen Palan, professor of International Politics at City University London, said the research was a “game changer” and was likely to prove as damaging to Luxembourg as previous revelations were to Switzerland and Liechtenstein.

“First, it was an open secret among tax experts that Luxembourg is among the leading tax havens in the world. Yet Luxembourg has managed to remain ‘under the radar’ not least because its politicians and bankers have been denying for years that it is, or ever was, a tax haven. The ICIJ provides the necessary proof that it is,” said Palan.

“Second, for the first time there is clear evidence implicating not an isolated and supposedly rogue bank, but one of the ‘big four’ accounting firms, PwC. I cannot stress enough the importance of the role played by the big four accounting firms in the development of the offshore world. The vast majority of the tax schemes that we have heard about in the past few years are organised by one of the big four accounting firms,” he added.

Warwick Business School Professor of Accounting Crawford Spence said he was not surprised by the new details.

“We now know that companies and their very well paid tax advisors have concocted all sorts of schemes to avoid paying tax in the countries in which they operate,” said Spence.

“If governments want to collect more tax income from companies, then national legislators need to make a concerted effort to implement OECD guidelines and prevent countries such as Luxembourg from undermining their efforts. Luxembourg is like a corporate version of extraordinary rendition, a place where companies can do their dirty work that would not be permitted at home,” he added.

Following the global financial crisis, governments in Europe and the US have made it a key priority to increase transparency and come down on tax evasion and secrecy.

Multinational corporations move profits from high-tax to low-tax jurisdictions through subsidiaries and offshore companies in order to reduce their tax bills.

There has been controversy on how firms such as Apple, Starbucks and Google have been able to engage in such practice. In their defence, it is argued that if policymakers attack firms for making use of legal activity, then such attacks undermine the rule of law and that it is up to elected governments to enact better, simpler and clearer rules in the first place.

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