World Economy

Luxembourg a Tax Haven for Int’l Firms

Luxembourg a Tax Haven for Int’l FirmsLuxembourg a Tax Haven for Int’l Firms

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, RT reported Friday.

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 $1.04 billion on over $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 non-profit 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 $750 million to reduce its tax rate on the $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.