THE worldwide exposé of several hundred major multinational companies channelling billions of pounds through Luxembourg to avoid tax - based on leaked documents first revealed in the UK in Private Eye two and a half years ago (see Eye 1314) – at last puts some pressure on the dodgy Grand Duchy. It ought also to pose some difficult questions for others closer to home.
The industrial tax avoidance practice, involving artificial financial instruments and contrived corporate entities, was run by Britain’s largest accountancy firm, PwC. This is the same PwC whose lead tax partner, Kevin Nicholson, told the Commons public accounts committee chairman Margaret Hodge last year: "We are not in the business of selling schemes.” Shortly afterwards a PwC tax director told an undercover Eye hack posing as a tax consultant: "There are a number of different structures and alternatives that we sort of prepare [sic] to put in place… There’s more than one Luxembourg structure for example” (see our special report Tax, Lies and Videotape – Eye 1349). Time for Hodge to have another chat with Nicholson, perhaps?
Shift profits offshore
The Eye’s investigation proved how changes to anti-tax avoidance laws made in 2012 by George Osborne and tax minister David Gauke allowed UK multinationals to shift profits offshore, with Luxembourg the favourite destination, when previously UK tax law could have clawed them back. The changes were specifically aimed at allowing companies to make low-taxed profits in Luxembourg using schemes flogged by PwC and others while keeping their costs in the UK. The result, a KPMG tax director told the Eye, was: "You’d be left with a net sort of minus 15 percent [tax rate]”. Ed Balls’ shadow treasury team, advised by PwC, refused to challenge the great giveaway even though, as long ago as 2010, the Eye had pointed out what would happen.
In Britain the leaked tax agreements were splashed by the Guardian, which had to point out that its owner, Guardian Media Group, was to be found in the cache of files. The scheme concerned the refinancing of its Emap trade publishing joint venture with private equity firm Apax. A GMG spokesman tried to pass it off as all down to Apax “which regularly used such structures. A Luxembourg entity was used because Apax already had that structure in place”.
GMG board fingerprints were all over the new structure
But a closer look at the documents shows PwC telling the Luxembourg taxman in April 2010: "The [Apax] funds and GMG have recently decided to restructure and improve the financial position of the EMAP group via a purchase of external mezzanine debt…” that would be “structured through two new Luxembourg companies…” In other words, GMG board fingerprints were all over the new structure.
The luckiest companies are those whose schemes the Eye reported in 2011 and 2012 and which thus escaped the limelight. They included Vodafone (natch), Glaxosmithkline, HSBC and Daily Express publisher Northern & Shell, whose proprietor Richard Desmond appears less rabidly Europhobic when it comes to enjoying the EU’s tax dodging possibilities. The other major user was Pearson, with a byzantine scheme that built on previous Luxembourg structures set up when in 2004 its then finance director, now BBC Trust chair Rona Fairhead, transferred $1.5bn of loans from Jersey to Luxembourg. She recently told MPs she followed the “spirit of the law” and the structure was “standard at the time”. It wasn’t.