​The landlocked European duchy has been called a “magical fairyland” for brand-name corporations seeking to drastically reduce tax bills.

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.
The leaked documents reviewed by ICIJ journalists include hundreds of private tax rulings – sometimes known as “comfort letters” – that Luxembourg provides to corporations seeking favorable tax treatment.

The European Union and Luxembourg have been fighting for months over Luxembourg’s reluctance to turn over information about its tax rulings to the EU, which is investigating whether the country’s tax deals with Amazon and Fiat Finance violate European law. Luxembourg officials have supplied some information to the EU but have refused, EU officials say, to provide a larger set of documents relating to its tax rulings.

Today ICIJ and its media partners are releasing a large cache of Luxembourg tax rulings – 548 comfort letters issued from 2002 to 2010 – and reporting on their contents in stories that will be published or broadcast in dozens of countries. It’s unclear whether any of these documents are among those still being sought by EU investigators, but they are the kinds of documents that go to the heart of the EU’s investigation into Luxembourg’s tax rulings.

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. 

The records show, for example, that Memphis-based FedEx Corp. set up two Luxembourg affiliates to shuffle earnings from its Mexican, French and Brazilian operations to FedEx affiliates in Hong Kong. Profits moved from Mexico to Luxembourg largely as tax-free dividends. Luxembourg agreed to tax only one quarter of 1 percent of FedEx’s non-dividend income flowing through this arrangement – leaving the remaining 99.75 percent tax-free. 
“A Luxembourg structure is a way of stripping income from whatever country it comes from,’’ said Stephen E. Shay, a professor of international taxation at Harvard Law School and a former tax official in the U.S. Treasury Department. The Grand Duchy, he said, “combines enormous flexibility to set up tax reduction schemes, along with binding tax rulings that are unique. It’s like a magical fairyland.”

FedEx declined comment on the specifics of its Luxembourg tax arrangements. Other companies seeking tax deals from Luxembourg come from private equity, real estate, banking, manufacturing, pharmaceuticals and other industries, the leaked files show. They include Accenture, Abbott Laboratories, American International Group (AIG), Amazon, Blackstone, Deutsche Bank, the Coach handbag empire, H.J. Heinz, JP Morgan Chase, Burberry, Procter & Gamble, the Carlyle Group and the Abu Dhabi Investment Authority. 

For their part, Luxembourg’s officials and defenders say the landlocked nation’s system of private tax agreements is above reproach.

“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.”

Less than 1 percent

Jean-Claude Juncker Image: Photo: via Flickr
Disclosure of the leaked documents comes at a sensitive time for Luxembourg, a nation with a population of less than 550,000. Amid the EU probe of Luxembourg’s tax deals, former Luxembourg Prime Minister Jean-Claude Juncker is in his first week in office as president of the European Commission, one of the most powerful positions in the EU.

Juncker, Luxembourg’s top leader when many of the jurisdiction’s tax breaks were crafted, has promised to crack down on tax dodging in his new post, but he has also said he believes his own country’s tax regime is in “full accordance” with European law. Under Luxembourg’s system, tax advisers from PwC and other firms can present proposals for corporate structures and transactions designed to create tax savings and then get written assurance that their plan will be viewed favorably by the duchy’s Ministry of Finance.

“It’s like taking your tax plan to the government and getting it blessed ahead of time,” said Richard D. Pomp, a tax law professor at the University of Connecticut School of Law. “And most are blessed. Luxembourg has a very user-friendly tax department.”
The private deals are legal in Luxembourg but may be subject to legal challenge outside the country if tax officials in other nations view them as improper.

Luxembourg’s Ministry of Finance said in a statement that “advance tax decisions” are “well established in many EU member states, such as Germany, France, the Netherlands, the U.K. and Luxembourg” and that they don’t conflict with European law as long as “all taxpayers in a similar situation are treated equally.” 

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.”

ICIJ and its media partners used corporate balance sheets, regulatory filings and court records to put the leaked tax rulings in context. News organizations that have worked together on the six-month investigation include The Guardian, Süddeutsche Zeitung and NDR/WDR in Germany, the Canadian Broadcasting Corporation, Le Monde, Japan’s Asahi Shimbun, CNBC, Denmark’s Politiken, Brazil’s Folha de S. Paulo and others.

U.S. and U.K. companies appeared more frequently in the leaked files than companies from any other country, followed by firms from Germany, Netherlands and Switzerland. Most of the rulings in the stash of documents were approved between 2008 and 2010. Some of them were first reported on in 2012 by Edouard Perrin for France 2 public television and by the BBC, but most of the PwC documents have never before been analyzed by reporters.

The files do not include tax deals sought from Luxembourg authorities through other accounting firms. And many of the documents do not include explicit figures for how much money the companies expected to shift through Luxembourg.
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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.

Sweden takes great pride in furniture and household goods megastore Ikea. When Jordan opened its first Ikea outlet, the Swedish Embassy in Amman published a statement on its website congratulating the country. The embassy then posted a blatant Ikea ad on its Facebook page, asking, “Did you know that Ikea has more than 300 stores in 38 countries?”

Last year the Swedish Embassy in Cairo, Egypt, touted the opening of first Ikea store in Africa. It’s not often an embassy congratulates a host country for the opening of a store, but really, what could be more Swedish than Ikea?

Few multinational corporations have managed to align themselves as neatly with a particular national identity as Ikea. Even fewer have done so with such spectacular good will. The Swedish company offers affordable furniture for the home, sold in efficient stores drenched in yellow and blue — the colors of the Swedish flag — with restaurants selling the company’s signature Swedish meatballs. The government sees pushing Ikea abroad as a soft power for Sweden, piggy-backing on the company’s success as well as unashamed promotion of the supposed Swedish values of economy, self-sufficiency and family-friendliness.

It is a great story. Unfortunately, it is based on a lie.
Ikea’s association with Swedishness and Swedish values is so ironic that one would be hard pressed to know where to begin. One obvious place to start would be to note that the Swedish government is using taxpayer money to give free advertising to a corporation that left Sweden to avoid paying taxes. Ikea contributes next to nothing to Sweden in the form of corporate tax, all while making billions off of its Swedish image. In fact, the company has gone to extraordinary lengths to avoid giving anything back to the national budgets of their host nations.

Ikea’s corporate structure is complicated, but the key point is that Ikea is a Netherlands-based “charity.” For many years, the vast majority of its outlets have been controlled by the Dutch company Ingka Holding, which in turn is owned by the not-for-profit Stichting Ingka Foundation, which was created in 1982 by the founder of Ikea, Ingvar Kamprad, for the purpose of ”furthering the advancement of architecture and interior design.” The Stichting Ingka Foundation is often listed as the wealthiest charitable foundation in the world, with assets in excess of $35 billion. As a result, Ikea pays a minuscule 3.5 percent nonprofit tax rate, far lower than its for-profit counterparts. In addition, recent revelations from LuxLeaks, an investigative project by the International Consortium of Investigative Journalists, show the company has made deals with the government of Luxembourg in order to pay as little tax as possible to anyone, anywhere. 


The company’s elaborate tax-avoidance scheme conflicts with its notion of Swedishness. Swedish social democracy is based on collective responsibility — the Swedish citizens’ willingness to sacrifice a little so that broader society might benefit. This sacrifice is crystallized in the form of taxation: Many (but not all) people in Sweden are willing to pay slightly higher taxes on income, alcohol, tobacco and gasoline in exchange for, for example, universal health care, generous parental leave and progressive environmental policies.

“A whopping 83 percent of Swedes say they have confidence” in the Swedish tax agency, despite the fact that “Sweden is as noted for its high personal taxes as it is for Ikea furniture,” according to the Swedish government. According to the government’s logic, nothing could be less Swedish than Ikea’s corporate tax avoidance and refusal to contribute to the country’s collective prosperity.
Still, Ikea’s Swedish defenders, including the government, claim that the furniture giant does a fantastic job of promoting Sweden and benefits the country in the long term. This argument, however, does not justify Swedish government promotion of a Dutch-Luxembourgian company. Instead, it points to a clear hypocrisy in which multiple governments around the world engage: telling citizens it is their national and legal duty to pay taxes in order to finance schools, roads, hospitals and defense while time bending backward to create a business-friendly environment in which corporations provide little to nothing for crucial infrastructure and services.  

In other words, two distinct rules: one for its citizens and the other for corporations.

Ultimately, the case of Ikea is about image and national branding. Ikea leverages its Swedish roots to market a social democratic corporate image. To be sure, Ikea has Swedish playrooms for children in their stores, but that doesn’t mean it will pay its fair share of taxes so that governments can provide real playrooms for children in the communities where the company operates. Despite the obvious irony, the Swedish government uses Ikea to brand little Sweden as a nation of big innovation and even bigger businesses. The strategy has certainly worked for Ikea, which in 2013 had a profit of more than $4 billion. However, it is unclear how or if this supposedly win-win strategy worked for Sweden and Swedish taxpayers. 

One thing is clear: Ikea’s hypocritical link to Swedishness extends only as far as such an association is profitable. Ikea appears comfortable abandoning its supposedly cherished national identity in favor of greener, lower-tax pastures when its bottom line is affected.