There's nothing quite like an enormous international corporate tax scheme, am I right?
Sure, there are no shoot-outs or car chases, but that's the beauty of it — it's a heist that's not technically a heist and the villains aren't sociopaths, they're just bureaucrats and accountants with families and paychecks just doing their day jobs. The banality is what makes it so diabolical!
Anyway, the International Consortium of Investigative Journalists has the story and it's a doozy:
Pepsi, IKEA, FedEx and 340 other international companies have secured secret deals from Luxembourg, allowing many of them to slash their global tax bills while maintaining little presence in the tiny European duchy, leaked documents show.These companies appear to have channeled hundreds of billions of dollars through Luxembourg and saved billions of dollars in taxes, according to a review of nearly 28,000 pages of confidential documents conducted by the International Consortium of Investigative Journalists and a team of more than 80 journalists from 26 countries.Big companies can book big tax savings by creating complicated accounting and legal structures that move profits to low-tax Luxembourg from higher-tax countries where they’re headquartered or do lots of business. In some instances, the leaked records indicate, companies have enjoyed effective tax rates of less than 1 percent on the profits they’ve shuffled into Luxembourg.
So a country offers generous tax rates to corporations and naturally, there's a global accounting firm right at the center of it and, naturally, it's PwC.
The leaked documents reviewed by ICIJ involve deals negotiated by PricewaterhouseCoopers, one of the world’s largest accounting firms, on behalf of hundreds of corporate clients. To qualify the companies for tax relief, the records show, PwC tax advisers helped come up with financial strategies that feature loans among sister companies and other moves designed to shift profits from one part of a corporation to another to reduce or eliminate taxable income.
This is not a surprise. In fact, some of you reading this are working in an international tax group helping your clients navigate the intricate mazes of multinational tax systems RIGHT NOW. This is what corporations pay accounting firms to do.
The problem, according to the report, is that the firm is being a little too aggressive for their own good:
Experts who’ve reviewed the files for ICIJ say the documents do make it clear, though, that the companies and their advisors at PwC engaged in aggressive tax-reduction strategies, using Luxembourg in combination with other tax havens such as Gibraltar, Delaware and Ireland.
I believe they call this tax haven superfecta a "GLID."
Okay, I just made that up, no one calls it that, but what isn't made up is the fact that GLID have been known tax havens for years. The difference, as the report states is "most of the PwC documents have never before been analyzed by reporters."
With this latest report, the scrutiny of tax havens and the firms that help companies execute these arrangements is heading towards critical mass. Or, at the very least, to an increased level of awareness where literally everyone believes corporations go far out of their way — or central Europe — to avoid taxes.
Well, not literally everyone, of course. Like this guy:
"No way are these sweetheart deals,” Nicolas Mackel, chief executive of Luxembourg for Finance, a quasi-governmental agency, said in an interview with ICIJ. “The Luxembourg system of taxation is competitive – there is nothing unfair or unethical about it,” Mackel said. “If companies manage to reduce their tax bills to a very low rate, that’s a problem not of one tax system but of the interaction of many tax systems.”
Not a shred of irony. And while Luxembourg guy did a nice job of standing up for Luxembourg, PwC's more than capable of defending itself in the court of public opinion:
PwC said ICIJ’s reporting is based on “outdated” and “stolen” information, “the theft of which is in the hands of the relevant authorities.” It said its tax advice and assistance are “given in accordance with applicable local, European and international tax laws and agreements and is guided by a PwC Global Tax Code of Conduct.”
In its statement PwC said media do not have “a complete understanding of the structures involved.” While the company can’t comment on specific client matters, it rejects “any suggestion that there is anything improper about the firm’s work.”
In other words, the information is irrelevant and too complicated to explain, PLUS it's not supposed to be for public consumption, so they aren't going to explain any of it.
It may be the PwC-iest PwC statement you'll ever read. The whole thing is on their global website.
And if you're not too wrapped up this afternoon, check out the entire ICIJ piece for a fascinating read.